24 January 2012

Hold on to your hats

So Juba has decided to stop oil production in South Sudan, in protest of Khartoum theft. Pre-independence, revenues from the South were split 50:50, and Khartoum have basically been trying to continue that by imposing arbitrary fees, asking for up to $30 per barrel (Juba claims that normal prices for pipeline transit fees in other countries are around $1 per barrel).

So now we have a war of attrition. Which side can afford to last out the longest before making a compromise? Who has the largest cash reserves relative to their recurrent spending demands? The numbers are probably not in the public domain, but Khartoum does at least have some other sources of revenue. Revenues in Juba must basically be zero now. But then Juba does probably have a more sympathetic population who seem to be behind the decision, and therefore with perhaps a greater appetite for dramatic spending cuts than citizens in Khartoum. Good luck Juba, and I pray this ends peacefully.

Do chime in if you have any insights.

Update: Alex de Waal notes that if the pipes are shut, it will take 6 months to get oil flowing again. The last chance to come to a deal is apparently Friday when Bashir and Kiir meet in Addis Ababa. 

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