The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

South Sudan: oil on troubled waters?

By Alex Bescoby, Critical Resource Associate
This year sees the birth of a new nation: South Sudan. But will the oil wealth it shares with the North bring peace or further war – and can oil firms do anything to help?

Amid the fast-moving political events in North Africa and the Middle East, it may be easy to forget a ground-breaking development in East Africa even earlier this year: in January the peaceful partition of Sudan was agreed by a referendum. Supported by almost 99% of the South Sudanese population and due to come into effect in July, this has been heralded as a rare triumph in the miserable saga of Africa’s most protracted civil conflict.

These newest global neighbours, however, are beset with difficulties that stem from over 50 years of North-South conflict – and the region’s oil lies at the heart of many of them. Just as for the instability in North Africa, the role of hydrocarbons in Sudan’s political trajectory needs to be carefully understood.

Since the first fields were developed in the late 1970s Sudan’s reserves have been a key driver of the war, and resolving disputes over revenues was central to the 2005 peace agreement. Both economies still depend heavily on oil, but they remain locked in an awkward embrace: South Sudan holds the lion’s share (around 80% of the former Republic’s 6.7 billion barrel reserves), while the North has the only refineries and the one pipeline to the sea. To a significant degree, the two countries’ futures will depend on how oil issues are managed.

For better or for worse? 

Some factors indicate that the oil reserves might encourage peace. Both states will benefit if oil continues to flow – this may partly explain the encouraging declarations of goodwill from both sides. Energy-hungry superpowers also have an incentive to ensure stability in what has been Africa’s third largest oil producer.

But the patterns of history may be hard to escape. Oil has long provided motivation and funds for war in Sudan; though peace now holds, oil-related spoilers are still abundant. The parties failed to agree on a clearly defined border before the referendum – leaving several potential flashpoints, most notably the province of Abyei which has experienced conflict and casualties in recent days – and it is no coincidence that the focus of disagreement has been around oil rich areas.

The situation is not helped by reports of troop build-ups along disputed sections of the border, with both North and South using oil-revenue to boost military spending*. Commentators fear that the promise of oil wealth may fuel internal rivalries in South Sudan. There have already been clashes in the region since the referendum between South Sudanese troops and militia of a disgruntled former general which left over 100 dead and thousands displaced in Jonglei, South Sudan’s most populous state.

In or out?

Having avoided Sudan for almost a decade because of violence, US sanctions and reputational risks, any western oil companies wishing to reengage in the region – Total has recently announced it will do so – will have several thorny problems to tackle. (At present, the Sudanese oil industry is dominated by Chinese, Malaysian and Indian firms in partnership with Sudapet, the state oil company.)

First, firms will have to navigate the tense and complex muddle of two states still sharing one industry without a clear framework for cooperation. Second, especially in the South, are the broader challenges of working in a chronically poor country, lacking in infrastructure and institutions, with a volatile political situation and a severe dependence on the oil industry. (Oil reportedly accounts for 98% of total government revenue in the South, which has a life expectancy of 42, an illiteracy rate of around 85% and only 60km of tarmac road.)

Third, should violence flare up again, companies will likely find their facilities targeted, as they have been in the past: Chevron, for example, was forced to abandon its Sudanese facilities in the 1980s largely as a result of such attacks. More recently, CNPC, the Chinese state oil company, has reported arson attacks, kidnappings of its staff and a proliferation of illegal checkpoints ‘taxing’ its fuel convoys.

Getting the basics right

Company managers may consider, with some justification, that influencing the complex and entrenched political situation is beyond their capacity – and indeed their remit. But there are important steps that firms should take to avoid exacerbating the countries’ (and their own) problems.

First, they must address two particular grievances surrounding the oil industry in Sudan at present – reports of severe environmental damage (particularly in the South) and accusations of human rights abuses and forced population clearances by the Sudanese authorities to make way for oil operations. Adopting best practice approaches to the environmental and social impact of their operations, including rules governing the conduct of any security forces involved, is essential.

Second, companies (again, particularly in the South) should do all they legitimately can to help the countries address the poverty and underdevelopment that could threaten their stability. Through carefully managed provision of jobs, training and social programmes, and support building the institutional capacity needed to drive development, companies can help cement the existing peace and leave the countries better prepared for a post-oil future.

BP’s efforts in Azerbaijan in the last decade stand as an encouraging example of how a company can work proactively and progressively with a government widely considered to be authoritarian and corrupt, and in a country recovering from very recent conflict. BP engaged with the government, for example, about how best to use oil revenues to generate good development outcomes and offered technical help with economic modelling as a way in to a wider conversation.

Third, they must do as much as they legitimately can to help the North and the South find a new, workable framework to share the oil industry on which they both depend. A key part of this will be transparency: as recent reports by Global Witness have highlighted, a functioning revenue-sharing scheme is impossible without a clear idea of how much oil is produced.

Placing pressure on both governments to greater transparency, particularly through EITI membership, is fully within the remit of private companies. But it must be remembered that influence is often most effectively applied as a condition of engagement, not after investment has been made.

Into the breach

Can companies go further and become directly involved in helping to build lasting peace in Sudan? There is precedent for them at least to try, whether through direct engagement in discussions or simply by providing suitable offices, logistics, resources and information to allow negotiations to take place.

Swedish oil firm Lundin, for example, invested serious time and effort in the 1990s to push the parties towards peace, but even the deployment of veteran Swedish diplomat Carl Bildt was not enough to check the continued violence that ultimately rendered the situation beyond the company’s control. More recently, the heavily-invested Chinese are reported to have played a positive behind-the scenes role in South Sudan.

Companies can turn to a well-developed literature for guidance and support on these issues from civil society organisations such as International Alert, SwissPeace, European Coalition on Oil in Sudan and others.

There are many – perhaps including the two governments – who would see such a role as inappropriate for private firms, and with so many external factors at play the chances of success may be low. But if their actions are carefully limited, defined, and non-partisan, there may be legitimate ways for companies to support political progress. And given the potential of oil, if mishandled, to undermine the tortuous progress towards peace in Sudan, opting to steer entirely clear of ‘politics’ may not be a choice they can afford to make.

*A recent revelation from Wikileaks shed light onto this arms build-up. US diplomatic communications revealed that a Ukrainian cargo ship filled with Russian tanks and weaponry captured by Somali pirates in September 2008 was bound for South Sudan, and not Kenya as previously thought.

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Alex Bescoby is an Associate at Critical Resource. alex.bescoby@c-resource.com

Photo: (c) iStock/Compass on Sudan