Survival of South Sudan may hinge on fate of one oilfield
FAILURE TO RETAIN PALOCH SPELLS DISASTER FOR A GOVERNMENT BATTLING TO STAY AFLOAT Dire straits 23% annual inflation rate for April, up from 13.7% in March. 75% decline in oil’s contribution to South Sudan’s budget.
A fter 17 months of civil war spanning a swathe of South Sudan bigger than Syria, President Salva Kiir’s survival may hinge on the fate of a single oilfield.
Paloch in Upper Nile state, the only region still pumping crude in a nation with sub Saharan Africa’s third-largest reserves, has re-emerged as the rebels’ prime target.
While the insurgents probably couldn’t find a market for its oil, the facilities’ capture or damage could spell disaster for a government that’s battling surging inflation and a slumping currency, and which depends on crude for about 90 per cent of its income, according to analysts including Alex de Waal, executive director of the World Peace Foundation at the Fletcher School in Massachusetts.
“The outcome of the war will be determined by who is able to sustain sufficient spending to keep their political-military coalitions functional,” de Waal said by email. “The current financial collapse in South Sudan is indicative that the government is losing badly on this front.”
State-owned China National Petroleum Corp is the biggest operator in South Sudan, while Japanese buyers prize the country’s low-sulfur crude as a clean-burning fuel for generating power.
No smooth transition
While the seizure of Paloch could deliver a fatal blow to Kiir’s presidency, rivalries within the armed opposition prevent a smooth transition of power and could prolong violence that has already killed tens of thousands of people.
“Oil is South Sudan’s bread and butter,” Luke Patey, who researches the industry at the Danish Institute for International Studies in Copenhagen, said by email. It’s “vital for President Kiir in maintaining the last fragments of political cohesion.”
Fighting that began in December 2013 has slashed oil output by at least a third to about 165,000 barrels per day, the Oil Ministry said last week.
Unity, the only other crudeproducing state, has been out of action since the war erupted.
In January, Frontier Economics, based in London, estimated the war could cost the economy as much as $28 billion (Dh102.8 billion) if it continues for the next five years, with neighbouring countries facing even bigger losses. Before the conflict, CNPC, Malaysia’s Petroliam Nasional Bhd and India’s Oil and Natural Gas Corp pumped most of the oil. A 40 per cent slump in global crude prices over the past year has also reduced South Sudan’s revenue.
In the capital, Juba, where the ruling party’s split first turned violent, visitors report soaring prices for essential goods and fuel shortages while the currency has lost half its value on the black market in the past six months.
Annual inflation accelerated to 23 per cent in April from 13.7 per cent a month earlier, according to the National Bureau of Statistics.
South Sudan’s pound was trading at as much as 14 per dollar on the black market last week, compared with about 6 per dollar in January, according to informal currency traders in Juba including Peter Manyiel.
Jok Madut Jok, who lectures in African studies at Loyola Marymount University in California and visited his homeland last week, said price rises for everything from construction materials to food and medical supplies have put them “already beyond everyone’s reach.”
South Sudan is facing a “desperate situation,” said Toby Lanzer, United Nations humanitarian coordinator in the country.
Vested interests
“Our impression is the central bank has no reserves,” he said by phone from Juba.
“We are under the impression the Treasury is empty. Income from petrol is down 75 per cent, the currency is depreciating sharply against dollar, and the gap between the official rate and the parallel is widening ever faster.”
An International Monetary Fund report in December said the central bank tried to devalue the pound by 34 per cent in November 2013 only for the move to be reversed because of “vested interests.”
Rationing of foreign currency “entails a hidden transfer of resources from the government to those with privileged access to foreign exchange at the official rate,” the IMF said.
If the rebels seize Paloch and immediately shut down production, the damage could effectively hamper long-term output for whoever’s in government, said Patey.
“A long closure will severely damage the pipeline or even render it obsolete,” he said. “This outcome will cripple South Sudan’s oil industry for years.”
Jok said that the war probably won’t have a clear victor and a lack of key resources could render the state ungovernable.
“If the rebels shut the oil, the government can only be for so long,” he said.
How rebels “would deal with the state with no resources is not clear either.”