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Sudan and South Sudan Prolong Oil Negotiations

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Summary

Sudan and South Sudan are still trying to sort out their differences as they negotiate the oil and security agreement that ended a brief border conflict less than a year ago. However, diplomatic and military problems continue to delay the process. As negotiations drag on, Juba's inability to export its oil without Khartoum's cooperation is strangling the South Sudanese economy.

Analysis

In January, South Sudan declared it was withdrawing forces from its border with Sudan's oil-producing Abyei region, which has been the subject of a territorial dispute between the two states. Current reports, however, suggest South Sudan is reinforcing its positions along Abyei, as well as in South Sudan's Upper Nile state. Abyei's considerable oil reserves are one of the main remaining obstacles to negotiations. An equally important matter is the transport of South Sudanese oil through Sudan, agreements about which are continuously held back by recurring military confrontations.

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Sudan-South Sudan Border and Oil FieldsFree

Skirmishes and occasional bombardments along the border between Sudan and South Sudan are reported on a regular basis, and the presence of rebel groups further complicates the situation. Rebels in South Sudan fight against South Sudanese government forces, while the Sudan People's Revolution Movement launches attacks against Sudan from South Sudan. Sudan has also accused South Sudan of infiltrating the western Sudanese region of Darfur. Sudan fights its own internal conflict in this province and claims South Sudan is exploiting the conflict in Darfur to destabilize Sudan. This activity could be tied to the Sudan People's Revolution Movement, because the organization is known to have active ties with rebel groups in Darfur.

Violence erupted in South Sudan on Feb. 8 when heavily armed rebels attacked cattle in Jonglei state, near the Ethiopian border. South Sudan claims Sudan was behind the attack. This type of violence regularly takes place in this region, which is home to several oil blocks that South Sudan would like to develop. South Sudanese officials have also been eyeing this particular area along the border with Ethiopia for use as a possible alternative route for oil exports. Other proposed routes have included a pipeline to Lamu, Kenya, and a pipeline to Uganda that would be a spur of a theoretical pipeline connecting Uganda to Kenya. None of the South Sudanese pipeline projects have gone beyond the concept stage. Juba now claims Sudan supports insecurity in Jonglei state to prevent the construction of oil infrastructure.

The regime in Sudan is also under considerable internal stress when it comes to dealing with South Sudan and the oil industry. Sudanese President Omar al Bashir declared he will not stand for re-election, causing many political actors and factions in Khartoum to scramble to force reforms or try to gain more power in the government. The Sudanese military, an important player in guaranteeing the stability of the regime, is disgruntled over the establishment of South Sudan as an independent state. The military understands it cannot block South Sudanese independence, but it can interfere with South Sudan's dependency on Sudan's oil pipelines as a tactic to force cooperation. If al Bashir were to sign an unfavorable deal with South Sudan, it would further humiliate the military's efforts and make it impossible to reclaim disputed land and resources in the future.

The oil revenue-sharing agreement South Sudan and Sudan signed in September 2012 is conditional on reaching an agreement that resolves security matters and demarcates a border. Negotiations on the border have since continued, but they have stalled several times. The last round of talks broke off Jan. 19 due to a disagreement on how to demilitarize the border. Negotiations were scheduled to restart Feb. 14 but were delayed indefinitely hours before talks were scheduled to begin. The lost oil revenue is inflicting financial pain on both countries, and the latest delay pushes back the resumption of South Sudan's 350,000 barrels per day of oil exports — cut off since January 2012 — to June or July at the earliest, and even then only if talks resume in the next few weeks.

Khartoum has the stronger position, controlling the pipelines Juba needs to export its crude oil, and has consistently stalled negotiations over the last two years, arguing that a border security agreement cannot be finalized so long as South Sudan continues to support proxy militias in Sudan. Over the last two years, Juba has not fully refrained from interference in Sudan through proxy militias, giving Khartoum reason to question Juba's assurances. Sudan has used border security as a tool to slow down the talks for several reasons. First, as the greater military power, the longer Sudan can control land along the border, pressuring and draining South Sudan's weaker military, the stronger its negotiation stance becomes. This is important because moving the border only a few kilometers in Abyei and Upper Nile State transfers millions of oil barrels in reserves from South Sudan's control to Sudan's. Equally for Juba, it must maintain a forward military presence to safeguard its territorial interests as far north as it is able. Juba's cross-border activities reinforce Khartoum's determination to deploy armed forces to the border. Second, the current revenue-sharing agreement only lasts through 2015. South Sudan could secure another export route through Kenya or Uganda, and if this route materializes, Sudan would lose all of its leverage and its oil revenue would only come from the oil physically under Khartoum's control. Finally, Khartoum has the ability to prolong negotiations because it is in a better financial position than Juba.

Prior to shutting off oil production, 97 percent of Juba's budget was funded by oil revenue. Since then, South Sudan has imposed harsh austerity measures and reduced government expenditures considerably as the government searches for alternative sources of revenue. It has struggled to find such sources and now risks running out of foreign reserves. If Juba does run out of reserves, its ability to negotiate with Khartoum will be severely diminished, and Khartoum would be able to secure a deal that heavily favors Sudan. If Juba fails to find another method of stockpiling dollars, South Sudan's foreign reserves are expected to run out in the second half of 2013 or at the beginning of 2014. Juba may receive modest donor assistance, but with concerns of corruption and poor management in the new South Sudanese government, the country has been left largely on its own to reach a reasonable border security and oil-sector cooperation deal with Khartoum — a deal that would permit oil revenues to resume.

South Sudan has very little time, and finding money to finance a month of the budget is crucial to bolster its weakening position. After talks failed to resume, Juba announced that in the next few months it plans to lease new oil concession blocks that are as yet unexplored. Juba also plans to split the large blocks into smaller ones, because it knows that large investments into its oil industry are unlikely while tension persists between Juba and Khartoum, but smaller investments remain realistic. South Sudan has also reached out to Israel and has signed a few oil contracts with it. Because of tension between Israel and Sudan, Israel does not want South Sudan to weaken to the point that Khartoum can make a play for some of Juba's oil reserves. Ultimately, South Sudan and Sudan will come to an agreement, because both need oil revenues to resume, but it is becoming increasingly apparent that they will wait until the last possible moment because of security demands.

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