Issue No. 39

 When The Oil Stops

A months-long disruption of crude oil exports has left the oil-dependent South Sudan teetering on the edge. Since early February, the Petrodar pipeline that hauls around two-thirds of the country's vital resource 1,400 kilometres to Port Sudan has faced repeated interruptions. With Juba's elite networks heavily reliant on the sustained flow of oil through its northern neighbour, President Salva Kiir's fragile government now stands imperilled as national elections scheduled for December 2024 loom.

Even as conflict raged in Sudan, oil imports were still reaching Port Sudan, before the sustained interruption in mid-February, though the exports were compromised by the war and Houthi-driven instability on the Red Sea. Indeed, crude oil output in 2023 averaged 152,000 Barrels Per Day (BPD), around 22% higher than the 2022 average, most of it transported through the consortium-built Petrodar pipeline. The war to the north had nevertheless increased pressure on Juba, with roughly 1,000 South Sudanese returnees and Sudanese refugees still crossing the border every day. Though oil was still reaching the critical Red Sea terminal, South Sudan's economy contracted by 0.4% in 2023, according to World Bank estimates. And the country remains highly impoverished, with an estimated 7.1 million people requiring food assistance between April and July 2024 and 1.6 million internally displaced.

Since February, the pipeline has faced significant disruptions, initially by a clog and subsequently through a rupturing in Rapid Support Force (RSF)-held territory, which remains unfixed, and most lately with news of further damage to the pipe and supporting infrastructure. The Bashayer Pipeline Company, which operates under the auspices of the Sudanese Armed Forces-controlled government, now faces the prospect of performing complex and lengthy maintenance works across multiple conflict frontlines. While officials from Sudan and South Sudan have insisted that the pipeline will resume operation within two months, this timeline is being viewed sceptically as entire sections are reported to be in an unfit condition and may require replacing altogether. The seeming reticence of RSF leadership to allow the resumption of oil flows is a further complication. While the RSF has been reported to have been siphoning from the pipeline to Port Sudan, oil exports are also crucial for the survival of the Sudanese Armed Forces (SAF).

Oil production is far and away the greatest source of income for South Sudan, accounting for the overwhelming majority of government revenue. Such a reliance has made South Sudan, and the Juba government, highly vulnerable to economic shocks from production disruptions and price fluctuations. Much like the former Omar al-Bashir regime in Sudan pre-2011, Salva Kiir's patronage network remains entirely dependent on the flow of oil money, often referred to as 'payroll peace,' as he distributes funds to ensure his position as president of a war-torn country. Critically, oil is a centralised extractive resource with complex equipment needed to remove, purify, and ship it-- before the funds flow back to the centre. As is customary with other oil-dependent, politically fragile governments, the oil and money flowing from these pipes is not being dedicated to national development but rather is used as a slush fund to temper possible revolts from within the palace.

Even as the benefits of oil proceeds are concentrated in Juba, the impact of the tanking economy and the current freefall of the South Sudanese Pound (SSP) is shared far more widely. In May, the Bank of South Sudan warned of a further imminent depreciation of the SSP, as a consequence of the ongoing depletion of foreign exchange reserves, with oil reserves now at a "historic low."

Another aspect of the ongoing oil crisis is the secretive USD 12 billion money-for-oil deal between South Sudan and the Dubai-based Hamdan Bin Khalifa Department of Projects, which came to the surface in December 2023. The deal promised to inject a quantity of cash worth almost twice South Sudan's Gross Domestic Product in exchange for essentially buying up the next 20 years of South Sudanese crude oil production at a discount price. The Emiratis already own vast tracts of agricultural land in South Sudan as part of a broader strategy to decarbonise its economy and shore up its food security.

Almost as soon as the existence of the deal was leaked, however, it was jeopardised by the damage to the pipeline in mid-February, compromising the ability of South Sudan to deliver on its end of the deal. Consequently, one of Salva Kiir's close advisors travelled to Abu Dhabi to renegotiate the proposed collateral deal but was left waiting for an audience for several days. This critical lifeline for Kiir's government is now in doubt, with questions growing about how, in its absence, the ruling Sudan People's Liberation Movement will be able to shore up its networks and stabilise the economy.

The situation in South Sudan had already appeared precarious, as it faced a lack of unified military forces, the absence of a permanent constitution, and no agreement yet on fundamental aspects of the country's first national elections scheduled to take place in December 2024. Now, the severing of the lifeblood that was allowing Kiir to sustain his inner circle threatens to undermine the prospect of holding elections altogether, an expensive business in and of itself. While Kiir has proven himself in the past to be an often brutal and effective political operator, and though he does not face an immediate threat from his inner circle, he nevertheless finds his government caught in the crosshairs between looming elections, a collapsing economy, and a destabilising conflict in Sudan. The chances of the December 2024 polls now taking place are looking ever more remote. 

By the Horn Edition team