Khartoum and Juba Oil Dance

Feb 4, 2015 | Alsir Sidahmed
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It is official. Juba wants to renegotiate oil-related agreements. Following the dramatic drop in world oil prices to its lowest level in more than five years, South Sudan Dar crude becomes the cheapest on earth. Two issues of the September 2012 agreements are affected by the current situation of the oil market: the Transitional Financial Arrangements (TFA) where $3.028 million are to be paid by Juba to Khartoum to help it meet the economic shock that resulted from the separation and the tariffs levied to cover transporting South Sudan oil through Sudanese downstream facilities to go to world markets.

DAR crude by its very nature is a heavy, acidic type with little appeal to buyers despite the fact that it has been in the market for more than seven years. Now with the market turning into a buyers’ one given the glut and abundance of more light and sweet crudes, it is becoming an uphill battle to market DAR and sweeten its deals with hefty discounts that go sometimes to $12-15 a barrel.

To complicate and already difficult situation production of DAR, estimated to be in the range of 160, 000 barrels per day is believed to be the only oil flowing from South Sudan fields following the closure of fields in Unity state after the outbreak of the civil war more than a year ago that resulted in the absence of more volume and better crude grades.

The deteriorating of both political and economic conditions have led to an unhealthy discussion about the tariffs and why they were fixed and not related to the movement of the price, otherwise those rates should have declined following the drop of oil prices. But that is an afterthought argument related to today’s market, not to the one of 2012 when the agreement was negotiated and prices were on the rise.
More troubling it looks like intended to score political points namely against chief negotiator then Pagan Amum and one of the political competitors now.

The current conditions will provide Khartoum with yet another card that could be used to press Juba for settlements of some of the outstanding issues from borders to supporting rebel groups that have been hanging on for the past four years following separation of South Sudan.

“The mediators who mediated the peace and the cooperation agreement between the two countries should have the same argument that South Sudan should not be allowed to collapse if we are losing more and it has become now in favor of Sudan,” said South Sudan’s petroleum minister, Stephen Dhieu Dau, who was the first official to bring the issue to the public.

Both Khartoum and Juba can do well by learning the bitter lesson of how to live in peace with each other and within each other. The separation of South Sudan was seen by some as an opportunity for a regime change in Khartoum. Equally the collapse of oil prices is seen now by some as an opportunity to settle scores, but the clear outcome of previous and similar experiences is that though such changing condition can provide a chance to inflict some damage, it hardly settles any score once and for all. It is time to recognize the golden rule of not intervening into others’ affair and try to make the best use of mutual interests.