18 February 2011

Wisdom on Oil in Sudan

The excellent John Ashworth (who should really start a proper website) writes:

Oil has the potential to destabilise the two new countries, North and South Sudan. The economies of both countries rely heavily on oil revenue; the South more so than the North, but nevertheless it is a significant percentage of the North's national income. If the North does not receive adequate oil revenue, its economy will suffer, and it is not in the interests of the South to have a northern neighbour with a collapsing economy. Worse still, if the North were to retaliate by refusing to allow southern oil to be exported via its pipeline, the South would have virtually no income, and both countries could potentially become bankrupt and unstable.

Thus at first glance Pagan Amum's statement that there will be no sharing of oil revenue ("The notion of sharing wealth will not be there. There is no continuation, whether 50 percent or anything") gives cause for concern. It appears to contradict statements by SPLM last year that there would be a revenue-sharing agreement.

However there is room for manoeuvre when he continues, "There’s going to be an agreement on the South continuing exporting its oil through the pipeline in Northern Sudan and to Port Sudan, and the South will be paying pipeline fees for transportation... We may be paying a transit fee". Southerners may not like the idea of "sharing" their wealth with a separate country, but may find it easier to accept a simple commercial transaction which is a normal process elsewhere in the world - to pay for the use of the pipeline and also to pay a transit fee. These "commercial" fees would of course have to add up to an amount which Khartoum finds acceptable, so after some hard bargaining it would be no surprise if it came close to the existing 50% in real terms. One area where the South will benefit financially is that they will now control the oil revenue; it is widely believed that Khartoum is currently giving them less than their true 50% share.

While searching for new export routes will definitely benefit the South (especially if routes can be found which are both economically and practically feasible within a reasonable time frame), it would not be beneficial for the North, and could thus be a destabilising factor in relations between the two newly independent countries.

Thankfully I don’t think alternative routes are at all economically viable, a new pipeline through Kenya would be prohibitively expensive. But don’t let that stop Southern politicians dangling Kenya as a bargaining tool.

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