“Sudan, South Sudan, and the Oil Revenues Controversy: Khartoum’s Obstructionism Threatens War”

Overview

There has been much discussion about the intensifying dispute between Khartoum and Juba over how much in transit fees the Republic of South Sudan (RSS) should pay the northern regime in order to transport its oil to Port Sudan on the Red Sea.  This has all been brought into the sharpest possible focus with the January 20 decision by the Government of South Sudan to halt shipments to northern Sudan and begin constructing an alternate pipeline route to the Kenyan coast.  Formal announcement was made by RSS President Salva Kiir on January 23.  This is not, however, one bad decision somehow mirroring Khartoum’s “equally bad” decision to begin massive sequestration of South Sudanese oil and oil revenues, as some would have it.  Alex de Waal, an advisor for the almost inexplicably ineffective African Union mediating team, writes tendentiously:

“When Sudan was still one country, 50 percent of the revenue from southern oil went to the central treasury, comprising 40 percent of its budget. After July 9, Khartoum received nothing—not even a transit fee.” (New York Times, January 24, 2012)

What de Waal does not mention here is the expressed, indeed eager willingness of the leadership in South Sudan to arrive at some reasonable agreement on transit fees.  But instead of negotiating such a fee, Khartoum has proposed a fee of $32 per barrel (more recently, this was upped to $36 per barrel)—roughly a third the cost of a barrel of Sudanese crude oil.  This is a preposterous figure compared with other transit fee arrangements (e.g., the Russian oil pipeline through Ukraine, Chad’s oil pipeline through Cameroon; see below).  Moreover, de Waal’s implicit suggestion that an independent South Sudan should be obliged to replace 40 percent of Khartoum’s budget revenues is absurd, the more so since the budget gap is largely a function of profligate military and security expenditures, amounting to roughly half the real budget.  Much of this military force and equipment continues to be directed against the South, as well as the border regions of South Kordofan, Blue Nile, and Darfur.

The South did make an offer of some $5.4 billion dollars to assist in Khartoum’s transition from dependence on Southern oil revenues, a figure judged reasonable by economists of the International Monetary Fund’s and the AU, according to Pagan Amum, chairman of the Sudan People’s Liberation Movement and chief RSS negotiator on oil issues:

“[Pagan] said that the International Monetary Fund, the African Union and South Sudan have agreed on a figure of $5.4 billion.” But in reply, “[northern] Sudan is demanding $15 billion in compensation for lost oil revenues after South Sudan’s independence.”  Also according to Pagan, and confirmed by subsequent statements from Khartoum, the regime “doesn’t want the African Union to mediate negotiations with the south.” (Bloomberg News, November 22, 2011)

Khartoum’s demand for $15 billion, almost three times the figure cited by Amum as having been judged fair by the IMF and AU, is not an economic calculation but rather a transparent grab, based on nothing but greed and a desire to push negotiations to the brink.  Like the $36 per barrel transit fee, this is simply not a good faith negotiating starting point.  Rather, it is a deliberate obstructionism.

With the sequestration of oil and oil revenues—in an amount that now approaches $1 billion—Khartoum has effectively compelled South Sudan to conclude that the regime has no intention of arriving at a reasonable resolution of these issues. The regime clearly felt that Juba had no choice except to capitulate.  The decision to build to the south, announced and vigorously defended by President Salva Kiir, demonstrates that this calculation by Khartoum was a serious error—if, in fact, Khartoum was simply playing a kind of negotiating brinksmanship.

But the regime’s actions have a larger context than de Waal’s narrow and misleading analysis would have us believe.  One key part of that context is the report today from the UN High Commission for Refugees that Khartoum’s military aircraft have again attacked Sudanese civilians in a refugee encampment inside South Sudan’s Upper Nile State, very close to the previous bombing of (New) Guffa on November 8, 2011.  The attack on Elfog refugee encampment wounded one boy, and has left fourteen people missing (Reuters [Juba] January 24, 2012). It bears comparison with yet another aerial attack by Khartoum, this on the refugee camp in Yida, Unity State (November 10, 2011), where one bomb landed right on the edge of a makeshift school in which shortly before some 200 students had been present.

This is not new.  Khartoum has bombed what is now the sovereign territory South Sudan repeatedly over the past 15 months—in Unity State, Upper Nile State, Western Bahr el Ghazal, and Northern Bahr el Ghazal.  An aerial attack on December 28 and 29 in Western Bahr el Ghazal reportedly killed some 40 people.  All these attacks are chronicled at www.sudanbombing.org.

Why these aerial attacks on civilians and humanitarians matter—beyond their brutal human destruction and displacement—is that they demonstrate, yet again, Khartoum’s continuous and flagrant violations of signed agreements, in this instance the Comprehensive Peace Agreement (2005), which guaranteed the South the right of self-determination.  This self-determination exercise has taken final form in the creation of the Republic of South Sudan, a sovereign nation whose territory cannot be bombed without violating Khartoum’s commitment to uphold the outcome of the Southern self-determination referendum (January 9, 2011). Khartoum’s cross-border aerial attacks also constitute egregious violations of international law, including international humanitarian law.

All this poses an inescapable question in the mind of Southerners: why should we trust any agreement—whether on transit fees or some other future contractual arrangement—with a regime that, without hesitation, bombs our people on our land?  The fate of Abyei—seized militarily by Khartoum on May 21, 2011—also weighs heavily in the calculations of the Southern leadership.  Here again, in conspicuous violation of the Abyei Protocol of the CPA and the decision of the Permanent Court of Arbitration (PCA) (July 2009), Khartoum first denied the promised self-determination for the “residents of Abyei” as that region is defined geographically by the PCA.  Then—in the wake of a silent military coup that secured a firm grip on political power in Khartoum—the regime moved into Abyei with its Sudan Armed Forces (SAF) and heavily armed Misseriya militia forces in May.  The more than 100,000 indigenous Dinka Ngok displaced from Abyei into South Sudan have no prospect of returning to their homeland as long as Khartoum retains military control of the region, as it clearly intends.  This seizure included the Diffra oil site, which though not especially productive, nonetheless generates approximately 2,000 to 2,500 barrels of crude oil per day, or roughly $75 million per year.  This is not an inconsequential amount of revenue for South Sudan, especially since there is evidence of other potential oil reserves near Diffra.

De Waal reduces all of this to a single sentence: “The rationale [for the decision of the South to stop transporting oil to the north] is that for the last month, Khartoum has been diverting the oil to its own refinery and filling three tankers.”  This is hardly trivial for cash-strapped South Sudan.  Moreover, it is a disingenuously partial explanation of the difficult and costly decision by the South, and reflects nothing so much as the African Union’s penchant for “moral equivalence” when attempting to arbitrate between Khartoum and Juba—and frequently siding with Khartoum in ways large and small.  The AU mediation team led by former South African president Thabo Mbeki, and which de Waal advises, failed miserably in Darfur, and then moved on to Abyei, where it failed just as miserably.  In both cases failure came in large part because the African Union, and Mbeki in particular, were perceived by both Darfuris and the Dinka Ngok of Abyei as siding with Khartoum.

There is, crucially, another reason that Khartoum may have compelled this decision by Juba concerning the future of Southern oil.  For it continues a pattern of sustained, intense, and destructive economic warfare against the South by Khartoum—something de Waal makes no mention of, even as it has been conspicuous for more than a year.  And the purpose of this warfare is not only to destabilize the South, to deny it as much as possible the opportunity for economic development, but to provoke actual military confrontation and to create from this a casus belli for renewed war.  In such a war, Khartoum’s generals presume that they would be able to seize at least some of the South’s oil fields by force.  Ominously, on several occasions the SAF has attacked South Sudan on the ground in the oil regions, not simply from the air (most notably at Jau in Unity State).  These actions are so clearly provocative that it is difficult not to see them, along with aerial attacks on military and civilian sites inside South Sudan, as attempts to spark a response that will grow into a much larger conflagration, for which (Khartoum assumes) both sides will be blamed equally and urged to “show restraint,” without any acknowledgement of what is even now clearly aggression on the part of Khartoum’s forces.

None of this is mentioned by de Waal, nor does he mention the compelling evidence that Khartoum is supporting renegade militia groups operating in South Sudan.  Much of this evidence comes from the Small Arms Survey, which has in a number of authoritative reports compared equipment captured from rebel groups by the (southern) Sudan People’s Liberation Army, as well as by the SPLA-North, with equipment captured from Khartoum’s regular and militia and regular forces in South Kordofan and Blue Nile.  Instead of mentioning this highly destabilizing proxy military campaign by Khartoum, de Waal emphasizes instead only that “the northern branch of the party [the Sudan People’s Liberation Movement/Army-North] supposedly split off [from the Southern SPLA/M, but] the South does not disguise its solidarity with its former comrades in arms.”  In fact, the SPLA/M-North—which has linked with other rebel movements from (north) Sudan’s marginalized regions—formally separated from the SPLM/A (South) on September 8, in accordance with the terms of the CPA.  There is no evidence of substantial aid from the South to the rebels fighting in South Kordofan or Blue Nile; every regional source I have consulted, while admitting we can’t know for sure, indicates a belief that material support, if it exists, is minimal.  Again, in an effort to fashion a moral equivalence between Khartoum and Juba, de Waal tendentiously and selectively presents current realities on the ground.

If Khartoum were attempting to create a factitious casus belli—one whose only requirement is that it not be immediately dismissed by the Arab League, the African Union, various allies at the UN, or the UN Secretariat—its actions would be exactly what we have seen since the seizure of Abyei on May 21: move next to attack South Kordofan (June 5), then Blue Nile (September 1), all the while denying humanitarian access to increasingly distressed populations.  This has created an enormous population of internally displaced persons and refugees, in both Ethiopia and South Sudan, and further strains the capacity of Juba to respond to crises elsewhere in the country.  The international community seems painfully ill-equipped diplomatically to respond to Khartoum’s military attacks on civilians, the consequent humanitarian issues, and the growing stream of refugees, now likely exceeding 150,000.

At the same time, receiving so little focused international diplomatic attention, Khartoum refuses to negotiate reasonably about border delineation (20 percent of the 2,100-kilometer north/south border remains undelineated, more than half a year after Southern independence); and the regime refuses to permit demarcation of what actually has been delineated (including the delineation of Abyei as rendered in the “final and binding” decision of the Permanent Court of Arbitration).  Southerners—defined ethnically, not by place of birth—are being stripped of their citizenship in (north) Sudan, and are subject to increasing harassment and denial of opportunities for education, medical treatment, and other services, as well as jobs.  Christians and Christian churches in the north are facing an unprecedented assault by the regime, whose president, Omar al-Bashir, insists on a constitution based on sharia (Islamic law) and on an exclusively Arab identity in defining Sudan.

Despite the effort by de Waal and others, including the Obama administration in the U.S., to frame the dispute over oil transit fees as one involving two equally recalcitrant parties, equally guilty of peremptory and dangerous decisions, any fuller look at the history of the past year will reveal clearly that neither the political nor the moral equities in this dispute are at all comparable (see detailed timeline for this period at http://goo.gl/UJgwN).   Khartoum has assumed the posture of aggressor, both in the realm of economic relations and in offensive military actions against the South and the border regions.  To ignore these basic facts, to ignore the fundamental asymmetry in the respective positions of Khartoum and Juba, is to distort in highly consequential fashion the challenges at hand.  Certainly “moral equivalence” of the sort de Waal and others are trying to force into the negotiating context is a victory for the National Islamic Front/National Congress Party regime, and is perceived as such, both in Khartoum and Juba.

To those who doubt that Khartoum is as cynical as this analysis suggests, that the regime is as given to mendacity as I argue, I would point to two recent statements by the regime’s ambassador to the UN, Daffa-Alla Elhag Ali Osman.  In the first, the ambassador declared that the humanitarian situation in the Nuba and South Kordofan is “normal,” an assessment that flies in the face of every single humanitarian indicator the international community has received, including the forecast by the Famine Early Warning System Network (FEWSNet) of near-famine conditions by March.  To risk hundreds of thousands of lives in an effort to deflect international pressure gives us a perfect picture of how the Khartoum regime regards the African peoples of these regions, as well as its willingness to lie in the most brazen fashion imaginable.  In an earlier statement, Khartoum’s UN ambassador declared of the November 10 bombing of Yida refugee camp that it was a fabrication and never occurred, this despite the fact that the attack had by that point been confirmed by journalists present during the attack, humanitarian personnel on the ground in Yida, as well as a UN investigation.

This is the negotiating face of the National Islamic Front/National Congress Party, and de Waal seems unwilling to confront it squarely.  And this in turn augurs very poorly for the success of the AU-mediated negotiations in Addis Ababa, which have been extended beyond January 24, but without any indication of progress.

Further context for the present dispute over oil transit fees

Despite the basic clarity of moral and political equities in the stand-off over oil revenues, there is a good deal that makes this discussion difficult and complicated.  We have only partially relevant precedents for such fees, although Khartoum’s proposal of $36 per barrel is indeed preposterously out of line with those we do have.  For example, Ukraine receives from Russia $7.80 to $9.50 per ton of oil transported through its territory by means of the immense Druzhba pipeline (there are approximately seven barrels in a ton of oil, so the price per barrel in transit fees would be $1.10 – $1.36). In 2009 Cameroon was negotiating an increase in the transit fee for oil from Chad passing through its territory from $0.41 to $1.00 per barrel.

Construction recovery costs for the partners of the Greater Nile Operating Company (Unity State) and Petrodar (Upper Nile) have either been recovered or very soon will be; Khartoum’s Sudapet is only a five percent partner in these two consortia. Indeed, since the 1990s Khartoum has been the beneficiary of major foreign technical expertise and capital investment; negotiations over the value of the infrastructure that remain in the south should certainly be part of broader negotiations about oil revenues.  But these costs should be separated from those for the continuing costs of transit fees and fees for the use of Port Sudan.  What Khartoum has attempted to do by sequestering large quantities of oil unilaterally, on the basis of a $32 per barrel transit fee, is not to calculate what a fair charge is for infrastructure, port fees, and transit fees; rather, it has estimated the size of its deficit and calculated the transit fee accordingly.  No matter that 75 percent of oil production comes from the South (which also has 80 percent of known reserves).  The regime is, in effect, charging South Sudan for its own gross economic mismanagement of the northern economy.

There are other important issues bearing on negotiations over oil revenues.  The north/south border is still undefined in key oil producing regions, including Abyei.  Losing the Bamboo and Heglig sites in the “final and binding” delineation of Abyei by the Permanent Court of Arbitration (July 2009) was a bitter disappointment to Southerners.  They abided by its terms, however, even as Khartoum has conspicuously not done so; and the military seizure of Abyei ensures that no resolution of this crisis is possible in the foreseeable future–certainly not for the more than 100,000 Dinka Ngok who remain displaced following the May 21 military occupation.

We should also recall that transparency in accounting, both for production and revenues figures, never figured in Khartoum’s sense of what it was obliged to provide the South, even after the signing of the Comprehensive Peace Agreement (2005).  Given the complexity of the royalties contracts with China National Petroleum Corp., Malaysia’s Petronas, and Canada’s Talisman Energy (later replaced by India’s ONG), as well as the opaque rendering of costs for infrastructure and equipment, it is very difficult to know where a fair starting point might be in calculating what Khartoum has actually paid for and what it has received from these foreign nationals—and what it has already received from South Sudan since the signing of the Comprehensive Peace Agreement.  The International Monetary Fund did a disastrously bad job monitoring oil revenues and military expenditures in the period 2000 – 2002, and has done little better subsequently; all we may be sure of is that huge amounts of these revenues went to profligate military spending and to lining the pockets of the regime and its cronies.

During the entire interim period (January 9, 2005 – July 9, 2011), Khartoum never made a good faith effort to provide transparent and plausible production or revenue figures to the Government of South Sudan (GOSS).  Of the roughly 50 percent of oil revenues from production in the South that were to have gone to the GOSS, hundreds of millions of dollars were diverted or disappeared by means of bookkeeping legerdemain.  Under the current regime, we are unlikely ever to know how many hundreds of millions of dollars the desperately needy South was denied during this six and a half year interim period.  It is not a figure that de Waal contends with in his account of oil revenue negotiations or how this reneging and withholding has affected Southern attitudes towards Khartoum.

Yet other relevant issues go back to Khartoum’s conduct of war later in 1990s through 2002, and the brutally destructive population clearances in the oil concession areas of what are now Unity State and Upper Nile State.  Ruthless displacement, deliberate attacks on civilians, stoking of ethnic tensions, and the use of foreign commercial actors as cover for these activities—all this defined early activities by Khartoum and the Greater Nile Petroleum Operating Company (GNPOC), and somewhat later Petrodar in Upper Nile.  The largest partners in both consortia are the national oil companies of the People’s Republic of China, and they were as ruthless in their extraction efforts as Khartoum was energetic in creating a cordon sanitaire for what was at the time known as Western Upper Nile.  Amnesty International reported at the time a chilling observation about Chinese workers: they were armed and appeared ready to use their weapons (May 3, 2000).

The oil concession areas throughout Sudan were considered by Khartoum to be their mineral wealth fiefdom: the designation and sale of concession blocks, their security, and the complex royalty agreements that were signed at the time involved no consultations with the people of the South.  And as Khartoum was generating greater and greater external debt, even during this period of new oil wealth, no thought was given to development needs in the South—or indeed in any other marginalized region of Sudan.  Indeed, there are reports that Khartoum’s engineers were directed after January 9, 2005 to extract oil horizontally from the South through well sites just north of the border; oil so extracted then became “northern” oil production, with 100 percent of the revenues going to Khartoum.  Oil fields in South Sudan were also pumped more rapidly during the interim period than is consistent with maximum long-term production.

The regime’s present suggestion that South Sudan should absorb some of this enormous Khartoum-generated debt—expended disproportionately on military acquisitions that continue to be directed against the people of the South—is simply grotesque.  Even so, there can be little doubt that Khartoum’s present obstructionism is part of a larger strategy, whether it be one of continuing, widespread economic warfare against the South—or deliberate provocation of the Republic of South Sudan, with an aim to creating a military response from the SPLA and thus a casus belli that will justify a military seizure of Southern oil regions.

The Breaking Point for Peace

There is considerable skepticism about the Southern leadership’s optimistic estimate (roughly a year) for the time necessary to construct an alternate pipeline to the Kenyan coast.  Clearly Khartoum has assumed an insurmountably lengthy time-frame in judging that the South would never go so far as to shut down oil transport to north Sudan.  And indeed, most estimates average around two to three years for construction, although the Chinese built the pipeline from Heglig to Port Sudan in approximately a year, and Beijing has put in a bid to build the pipeline southward.  Juba would obviously push hard for construction to be as rapid as possible, and would also begin to build domestic refineries that could be supplied by Southern crude.  In short, Juba is clearly prepared to call Khartoum’s bluff—and this creates an extremely dangerous situation.

But without a fundamental shift in the negotiating posture of Khartoum, one that the AU is extremely unlikely to push for, to judge by de Waal’s skewed assessment of the two parties, the talks in Addis will break down on Friday (January 27) when Presidents Salva Kiir and Omar al-Bashir are scheduled to meet.  But we should keep in mind the clear possibility that a collapse of these talks is in fact deliberate on Khartoum’s part: since an already highly distressed northern economy would implode with the precipitous loss of all oil revenues from the South, economic woes of all sorts could be collectively blamed on a hostile and “belligerent” South.  The regime would blame this implosion not on its own gross mismanagement of the economy, its vastly excessive military and security expenditures, or its accrual of an unsustainable external debt of more than $38 billion—but rather on the South.  The generals in Khartoum who now make decisions about war and peace will have their pretext for war—a war that will be justified, in a grim irony, as punishing the South for its “economic warfare” against the north.

If war comes—and it almost daily appears more likely—it will be a war emerging from the indifference, foolishness, and cowardice of an international community that refuses to see the Khartoum regime for what it is, or even to speak honestly about what it has done and continues to do to the marginalized peoples of Darfur, Eastern Sudan, Abyei, Blue Nile, South Kordofan, and increasingly the border regions inside South Sudan.  We have reached the “brink of war” that de Waal speaks of not because of what South Sudan has done, but because of what the international community has not done.

January 24, 2012