South Sudan Cuts Off Its Oil To Spite Its Economy

It seems like only yesterday that we were wishing the new nation of South Sudan all the best after it voted to create a new, independent republic. However, it probably wasn't long in coming that the tensions with Sudan (call it the old, "North" Sudan) resurfaced. You see, while many of the oil-rich parts of the old Sudan went to South Sudan, the problem is that South Sudan is landlocked. To access ports and from there export markets, it had to rely on the old pipelines which brought crude to the coast and ports of "North" Sudan. Fully aware of this situation, the latter has not been averse to holding South Sudan "hostage" with exorbitant transport fees for using these pipelines (lifelines?)

As we near South Sudan's first anniversary, its authorities have since the beginning of the year discontinued exports passing through "North" Sudan over a dispute involving transit fees. Which, in effect, cuts off its entire oil industry from the rest of the world for geographic reasons:

Brave or reckless, South Sudan's decision to shut down its oil production to protest the north has had disastrous consequences for its citizens. The country's economy came to a jarring halt in January, when it shut down oil production due to a trade dispute with Sudan. To make up for its own lost revenues from the split with South Sudan, Khartoum had been demanding exorbitant transit fees for the use of its pipelines and port, the only available route for South Sudan to export its oil. 

Anne Itto, Deputy Secretary of South Sudan's ruling party, the SPLM, says the south has refused to resume production until Sudan agrees to more reasonable terms. "Khartoum was asking $36 per drum, which is very unusual and is not practicable," said Itto. "If south Sudan ever accepts to pay such rent, it is like giving away our oil, as well." 

When the pumps came to a stop, South Sudan had lost the source of 98 percent of its annual revenue. Already one of the poorest nations in the world, ranking at the bottom of every list of human development, the government has announced austerity measures to cope with the loss. The Secretary-General of South Sudan's Chamber of Commerce Simon Akwei Deng, speaking at a debate sponsored by the BBC, says the shutdown has crippled the country's nascent private sector.

While debates over austerity are not uncommon in the developed world and most of the developing world, in South Sudan it's literally a matter of life and death as this impasse lingers and the government has essentially, well, sacrificed essentially its only cash cow:

[US Special Envoy Princeton] Lyman says nearly three million people in South Sudan are in need of food assistance, which is about 30 percent of the population. The United Nations has voiced concern that the government's austerity measures will further hurt the poorest of the poor, by cutting services and leaving citizens with less money to spend on basic needs. Humanitarian agencies have their hands full helping some 200,000 refugees that have fled to camps in the south to escape fighting in Sudan.

The controversial UN correspondent Matthew Lee suggests it is remarkable how well-received South Sudan playing a game of chicken with Khartoum is with UN bigwigs. True enough, rather unsurprising calls for more humanitarian assistance for South Sudan are in no small part the result of grievous damage the new republic has chosen to inflict on itself, with no compromise despite the unfortunate "hostage" situation:

One of them questioned how the UN could in good conscience put out a big consolidated humanitarian appeal for problems caused by a government choosing to forego revenue, arguably to see if it would hurt its neighbor more and cause regime change there.

South Sudan suggests that international infrastructure firms are willing to build it a pipeline which does not pass through "North" Sudan on its way to the coast. Chinese, perhaps? But, unanswered questions remain as to (1) the identity of this foreign firm or firms; (2) the nation willing to use its ports to accommodate South Sudan's oil exports; (3) the possibility of this new country in turn being able to hold South Sudan "hostage" alike Khartoum does should things turn sour; and most importantly, (4) how long such a pipeline will take to construct given that the South Sudanese are already in dire straits.

It's not a pretty picture, but it's partly the result of choices they've made. Importantly, the problems they are encountering now were foreseeable well in advance given less-than-cordial relations with "North" Sudan. It's a humanitarian disaster, albeit one which goes some way in demonstrating that while geography is not destiny, being a landlocked fledgling republic has significant drawbacks.