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Home Archive July 2012 Issue Issue Content The Two Sudans 2012-2013: Oil and Conflict

The Two Sudans 2012-2013: Oil and Conflict

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Conflict between North and South Sudan has a long and varied history.  Oil was not a major factor in polarizing relations between these two until the 1980s. Since then however oil has become a powerful element exacerbating conflict and it remains so today. However, looking forward, oil could also be a force for peace. In principle, it could provides a basis for shared interests and trust building because agreement on this resource issue would benefit both countries economically.  .

Historical overview

Sudan became independent, of a ‘Condominium’ arrangement under which Britain and Egypt nominally shared power but Britain was in effective control,  in 1956.  Under colonial rule, the North and South had largely been administered as distinct and separate entities. South Sudan was then, as it remains now, very much less developed than the North. In the months running up to independence, Southern separatist movements became active as the government of a newly independent Sudan, dominated by Northern leaders, sought to establish a centralized state. Conflict escalated into civil war, which lasted until the 1972 Addis Ababa Peace Agreement on ‘The Problem of South Sudan.’

Under  the agreement, the South had autonomy and freedom of religion; a single elected regional government supported by revenue from local taxes, fees and transfers from the North to help narrow the economic gap. The years immediately after 1972 were something of a golden period; the 1973 constitution defined Sudan as a country with a dual Arab and African identity, with respect for Islam and Christianity, and provided for equal legal rights for all. Southerners came into the government, and into prominent positions such as the Ambassador of Sudan to the United States. During this period of peace, oil was discovered in the North-South border area by Chevron, which in 1979 announced the discovery of commercially viable quantities.  The north-south border is fully delineated over about 70% of its length. The precise border remains contested over the remaining part.  As of today, both Sudans agree that the border should be based on that of 1956, but do not agree by what that means in practice. 

However, North-South relations deteriorated and tensions and conflict re-emerged. Oil was one important strand in the tensions that lead to war, but other critical factors were political developments within the North that lead to a forceful reemergence of support for a centralized Islamic state and the strengthening of Sudan’s army as a result of Cold War maneuvering by the US (and China) in opposition to Soviet-aligned Libya and Ethiopia. The government of Sudan re-drew administrative borders to include the oil-rich areas in the North; it sought to impose Sharia law throughout the country.  In 1983, the Numeiri government unilaterally abrogated the Addis Ababa agreement. The second civil war began.

The second civil war from 1983 involved both a North-South conflict and conflict between southern groups; it is therefore often referred to as a set of civil wars. Oil was a factor at the start and continuation of the second civil wars in many ways. The location of the first commercially viable oil finds on the North-South border stoked conflict over control of this area.  As industry developed (albeit in a stuttering way because of the conflict) disputes also arose over control of oil revenue.  Oil was not relevant at the time that Addis Ababa was negotiated so no provisions were included on allocation between North and South in the agreement.  A third issue concerned the location of a refinery – should it be in the South near the oil fields or in the North close to the main markets? Meanwhile, the forced expulsion of people from the areas surrounding the oil field created anger and distrust, and gave added impetus to the struggle for autonomy, with the recognition that the South was wealthy.  Also, oil enabled arms to be bought.  These factors remain relevant today. 

The North-South conflict lasted with varying levels of intensity until the 2005 Comprehensive Peace Agreement (CPA).  Under the CPA, South Sudan became an autonomous part of Sudan with its own government, political system, laws and budget.  The CPA recognized the importance of oil by including specific and detailed provisions for the management of Sudan’s oil wealth in the Wealth Sharing Agreement (WSA) that formed part of the CPA, and in the protocols for the resolution of conflict in Abeyei (the area where oil straddles the border). 
 
Map of North and South Sudan
 
 
Source: CIA World Factbook 2012
 
 
By the time the CPA was signed, Sudan had become a small scale oil producer in international terms –producing less than 1% of global output - but most of this oil was exported, and oil revenue became by far the single most important source of foreign exchange and revenue for the Sudanese government.  Although Chevron had left Sudan early in the outbreak of the second civil war after its operations were attacked, and the set of smaller Western companies that took up the oil concessions in the 1990s also withdrew new investors from China, Malaysia and India succeeded in developing production from two large areas (one straddling the border and one in the South) and constructed pipelines to transport crude oil to export terminals on the Red Sea and to refineries in the North. 

The CPA was explicitly set up to provide transitional arrangements for a six-year period leading to a referendum in which the people of the South would decide if they wished to stay part of Sudan or secede.  In signing the CPA, leaders of the National Congress Party (NCP) government of the North and the Sudan People’s Liberation Army/Movement (SPLM/A) government of the South, agreed that they would both work to ‘make unity attractive.’  A year after the end of the CPA, and following a peaceful and fair referendum in which the people of the South voted overwhelmingly for independence, it seems clear that neither of the political parties that controlled North and South during the CPA did, in practice, work to make unity attractive.  Understanding why this was the case is a task for future historians. 


The Wealth Sharing Agreement

In relation to oil, the Wealth Sharing Agreement (WSA) had three principal provisions. First was that government revenue from oil produced in the South (but not the North) would be shared equally between the national government and Government of South Sudan (GOSS). Producing areas received 2% of revenue, deducted before the balance was shared.  This provision was implemented, although there were delays in transferring monies to the south, and there remain unresolved allegations that the South did not receive all it was due.  During the CPA period, the government of South Sudan (GOSS) received some $10 billion from oil revenue sharing.  The National Petroleum Commission set up to manage the oil industry, only ever operated in a half-hearted manner. It did not become an effective agency nor did it provide a basis on which technocrats from North and South would share information and analysis and jointly manage the operating companies. In practice, the state oil company, Sudapet, took this role, and it was lead and staffed predominantly by Northerners. The third ‘oil’ strand in the CPA was the commitment to compensate people affected by development of the oil industry. This relates to the credible allegations of human rights and environmental damage from the industry.  However, during the CPA, no comprehensive assessment of damage was undertaken, and no compensation was paid.

During 2010, in anticipation of the referendum on southern independence presaged in the CPA, the North and South started negotiations over post-CPA arrangements, including on oil.  The African Union, under Thabo Mbeki, was appointed to facilitate negotiations; both North and South received technical assistance from Norway under that country’s Oil for Development program. A broad consensus developed among international observers that both North and South had more to gain by reaching agreement on oil than to lose since both economies depended on oil.  Discussion and analysis looked at arrangements made in other situations, including those of de facto secession – for example the breakdown of the Soviet Union, to explore options and risks associated with managing oilfields that straddle national borders and transit pipelines that cross another country for exports.  Both Sudans were encouraged to address environmental and human rights issues and to join the Extractive Industries Transparency Initiative (EITI) that sets a framework for transparency and anti-corruption in relation to oil revenues.  In relation to EITI, both the national government prior to the referendum and South Sudan after independence made statements about joining,  but neither has taken this forward yet. No progress was made in the pre-referendum oil negotiations with both North and South setting hard and irreconcilable positions, particularly on pipeline transit fees and on national control of oilfields - including those that straddle borders although such fields will be more productive if they are managed as a single entity with the benefits shared (an oil industry process known as unitization). Neither side would share the technical studies undertaken on their behalf by the Norwegians – including work on how to enhance oil recovery (North) and environmental assessment (South).  The strong case made from outside that both Sudans required a transparent and stable oil regime in order to encourage more investment in exploration and production so as to grow the oil ‘pie’ had little traction, despite both North and South stating the desire to have investment from Western oil majors and particularly the return of Chevron.

The divorce of North and South took place in July 2011, but at year later, no divorce terms with respect to oil (or most of the other outstanding issues) have been reached.   Both sides have become increasingly intransigent, with seizure of oil consignments by Sudan, a period of violent conflict in Abeyei and unilateral shut down of the oil industry in the South by the government of South Sudan.  Both countries are in economic crisis; the government of Sudan faces popular protests in what could turn out to be their ‘Arab Autumn’, and the government of South Sudan is under criticism for corruption and human rights abuses including restrictions on journalists and an inefficient and corrupt judiciary.  (See US State Department, Country Human rights Report: South Sudan, June 2012).  Interventions from China, which has links with both governments and the strongest external economic interest in keeping the oil flowing as the largest investor in the sector, has also failed to bring the parties to agreement.

Importantly, all negotiations between North and South – both when the CPA was being developed, and since South Sudan became independent, have involved only the political leaders of the dominant political parties of North and South. Other political voices and civil society have been absent from the negotiating table throughout.

In hindsight in the latter years of the CPA, during the pre-referendum period, and since it is clear that there have been three separate ongoing dialogues – each of which has been blind to others’ perspectives. The dominant discourse amongst northern leaders was denial of the strength of southern desire for independence or the implications this would have for the North  particularly with respect to the impact of a loss of oil revenue.  There was a no serious preparation - either technically or in raising public awareness – for an economy with much lower oil revenues or for interaction with the South on equal terms.  Discussion within the South – starting from the time when the southern state oil company, Nilepet, carved out a part of the existing exploration concession held by Total, and sold it to a hitherto unknown British oil company was all about independence, taking control of their oil, and the building an alternative export pipeline. There was little or no acceptance of the basic facts of the international oil economy - that oil reserves have no value unless they can be pumped and sold; oil companies that have built multimillion dollar pipelines will not happily write off this investment, and new investors will not spend the money needed to do further exploration and oil field development unless they know they have secure contract terms and can export. The international community has suffered from a blind spot about the long and complex history of conflict and deep mistrust  leading to the mistaken assumption that rational economics would prevail, as well as facilitating narrow processes under which a small set of political leaders from Sudan and South Sudan have been the sole negotiators.

Looking ahead, what are the scenarios for the next twelve months? Logically, the options are (1) the two Sudans come to a complete divorce settlement and on that basis set the scene for mutually respectful if not friendly, relations. For oil, this would mean some sort of joint international control of oilfields that straddle the border between North and South and transit fees that reflect the strength of Sudan’s hand as a transit power (but without making the cost so high that South Sudan invests as fast as possible in an alternative pipeline before there is additional oil to transport).  This outcome which would provide the basis for growing the oil ‘pie’ and hence a basis for benefits to citizens of both states.  This seems very unlikely absent a change of regime in one or both states. The opposite scenario, (2) resumption of full-scale war, also seems unlikely, not least because of the absence of assured long term suppliers of weapons to either state despite talk of Iranian and Israeli interests on the side of North and South respectively.   

The most likely outcome (3) for the next twelve months is that the two Sudans will remain in a 'no war, no peace' position, and thus join the list of other irreconcilable frozen conflicts around the world such as that between Azerbaijan and Armenia in Nagorno-Karabakh.  The economies of both countries will continue to implode, the élites will become more and more distant from the people, violence will periodically flare up, and most peoples’ lives will become harsher and more insecure. With oil prices expected to fall globally in the face of recession, replacement of oil by gas and rising oil supplies internationally, international interest in the two countries’ oil potential will fall.

The best hope for the next twelve months is that the two sets of leaders will face up to this appalling scenario and negotiate with a real willingness to make the very difficult compromises that are needed. If they can do so, there should remain enough international interest from the United States, Europe and China to help the two Sudans draw back from the abyss and start to set the basis on which their peoples can build better lives.

Contributor Jill Shankleman is a Senior Scholar, Woodrow Wilson International Center for Scholars, Washington D.C. and Principal, JSL Consultants, Oxford, UK

 
 

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