Sudan: Oil Risks, Juba And Khartoum Gamble With The Future

It is gambling and there are big risks,” says Mohamed Mukhtar, director of the Centre for Peace and Development at the University of Juba. South Sudan has blocked oil exports to push Khartoum to accept lower rates for the use of the pipelines. Few know how this will end.

South Sudan is gambling because sales of crude oil are worth 98% of the entire state budget of this poor, fragile, newly independent state borne last July 22 after almost 22 years of civil war. But the northern neighbor is also risking. Before Juba shuts the oil tap the government of Omar Hassan al-Bashir drew almost all of its resources from exports of oil south through the Red Sea. Coinciding with the announcement of the stop to exports, last month, the exchange rate of the Sudanese pound against the dollar has plummeted from 2.7 to five to one. And there are those who expect that there will be a 4.5 percentage point recession in 2012.

The former rebels who govern South Sudan say they can do it. During the Civil War, they say, they were already making many sacrifices. Calculator in hand, however, this time might be just too hard. The “austerity” plan announced after the export ban includes cuts of 50% over expenditure items except salaries.

According to Professor Mukhtar, unless the government wnats to commit suicide it will not touch the salaries of the military. Despite the agreement in 2005 ended the civil war, the plans for the demobilization and reintegration of combatants have never been implemented. “The result – underlines Professor Mukhtar – is that the expenses of maintaining the military absorb most of the budget.”

Since oil accouints for 98% of revenue, you cannot keep the taps closed for long. “The government claims to have enough resources for 18 months – said to MISNA Jared Ferrie, correspondent from Juba for the financial news agency ‘Bloomberg’ – but there are many questions: wages, which should not be affected by austerity measures account for 42% of the costs.”

On one thing, at least, everyone agrees. And that is that, just six years after the war, the south-Sudanese government offers almost nothing in terms of services. The cut will have few consequences on schools and hospitals. The missionaries have also told MISNA: “More will be asked of the UN and non-governmental organizations”.

The gamble is that the former rebels and the Khartoum government will jump first. In Sudan, in January, annual inflation reached 19% and the deficit for the years 2011 to 2015 is forecast to reach nearly eight billion dollars. The international loans route is hard to follow because of US sanctions against al-Bashir and the foreign debt of 38 billion dollars.

In expectation that someone will collapse, the positions on transit fees remain the same. Khartoum demands $35 per barrel and Juba replies 69 cents, claiming this is the international standard. Al-Bashir will not give in it to compensate the losses of the expiry of the Agreement of 2005 which imposed a division of oil revenues on an equal basis. In Khartoum, perhaps, they are hoping that the former enemies have made a miscalculation.

Again nothing to do with the pipelines, not the ones crossing the Sudan, but the ones that could cut across Ethiopia, Uganda and Kenya. A few days after announcing the oil blockade Juba has signed Memorandum of Understanding for the construction of two pipelines that would allow its oil to reach the markets of China and Japan bypassing Khartoum. The main project promises to transform the Kenyan port of Lamu into a regional hub. That project is worth $22 billion and it raises at least as many questions as it does solutions.

The first problem is the money, hard to find in times of international crisis. “Neither the U.S. nor Europe, nor China – says Mukhtar – would be willing to invest billions in a country that is still unstable, risking a conflict with its neighbors.” The second problem is the time, despite Juba claims that 18 months are sufficient to open the new pipelines. According to the professor, “signing the memorandum is the easy part, building it is much more difficult.” For Lamu, he adds, at least two or three years are needed.

In the meantime, and while the UN agencies have denounced the risk of another disaster for tens of thousands of displaced people fleeing fighting and violence, the Government of South Sudan has decided to increase the salaries of policemen. Wages will increase from 400 to 700 South Sudanese Pounds, whioch is enough to keep up the morale of officers, forgetting austerity.