South Sudan: Oil revival to boost economic recovery

The oil taps are open again.

On Saturday, South Sudan resumed pumping 20,000 barrels per day (bpd) of crude oil from the Toma South oilfield, where production had been suspended since 2013 due to civil war, Sudan’s oil and gas minister Azhari Abdulqader said.

Once maintenance work on five previously suspended oil fields is completed, it is expected to increase production to 80,000 bpd with the country’s oil output reaching 210,000 bpd by the end of the year.

Income from oil accounts for 98 percent of the country’s budget.

Insecurity and the post-2014 oil price crash left the economy in tatters. But the increased oil output will revive South Sudan’s economic fortunes, according to Kimo Adiebo, an economics professor at the University of Juba.

“This increases government’s share in oil production and eventually oil revenue,” Adiebo told Al Jazeera.

“Additional oil revenue would enable the government to stick to its policy of not printing money – borrowing from the central bank – and hence more control of inflation and the exchange rate, leading to gradual macroeconomic stability.”

The most intense fighting between rebels and South Sudanese government troops took place at the Toma South oilfields, just over 30km from the border with Sudan, damaging oil production facilities.

But the country’s oil crisis could have been avoided, Professor Paul Moorcraft, director at Centre for Foreign Policy Analysis, said.

“Juba cutting the oil off at the start of the post-independence war with Khartoum was the biggest self-inflicted political injury since Hitler declared war on the US,” said Moorcraft. 

“Clearly, independence has been a catastrophe for the south and a disaster for the north. Yet, in Africa, politics always trumps economic logic.”

Working relationship

The resumption of oil activities is part of a ceasefire and power-sharing agreement between President Salva Kiir, rebel leader Riek Machar and other rebel groups to end the country’s civil war.

The peace deal has revived hopes of economic stability being restored.

South Sudan lacks the infrastructure to process its oil production. It is landlocked, forcing the young nation to use pipelines that go through Sudan to export its oil to the international market.

In June this year, Khartoum and Juba agreed to repair oil infrastructure facilities destroyed by the war within three months in order to boost production and said a joint force would be established to protect the oilfields from attacks by rebel forces.

“Maybe utter war-weariness and famine may allow some sense to prevail and the two main sides in the civil war may now work with Khartoum,” said Moorcraft.

“It is interesting how President Omar al-Bashir has had a good working relationship with Kiir and Machar. The level of corruption in the south is so bad that very little of any oil – or aid – money gets to the ordinary citizen. The problem is that all the money is held in Juba.

“Yet, if some money gets to peripheries, it fuels tribal warlordism. [The] paradox of development.”

Oil production was at around 245,000 bpd at the time fighting started. But plummeted to about 120,000 bpd during the war from a peak of 350,000 bpd, according to the World Bank.

Investor confidence

Juba is seeking new investors in the oil sector after the government halted talks with French oil company Total about developing two oil blocks.

Total, along with two other oil companies, had been in talks about developing those oilfields since 2013.

But Total and the government failed to agree on the duration of the exploration and the commercial terms of a production-sharing agreement.

However, despite the peace deal, investors remain sceptical. Rights campaigner Beny Mabor told Al Jazeera that the prospects of attracting investors are bleak as long as conflict go unaddressed.

“Investment is equal to secure environment, Therefore, if there’s peace, the investors will come and if not, I’m afraid they might not either,” Mabor said.

In March, the US imposed sanctions on 15 South Sudanese oil operators who allegedly assisted government to buy weapons and funded militia groups.

Tens of thousands of people were killed by the civil war which also forced millions to flee their homes, triggering a humanitarian crisis and ruined the country’s economy that heavily relies on crude oil production.

Seven million South Sudanese, more than half of its population, will need food aid in 2018, according to the United Nations.

“This additional oil money may enable the government to increase spending towards poverty reduction, education, health, social welfare and humanitarian aid,” said Adiebo.

“Diverting more of this additional oil money towards consolidation of peace would bring security to rural areas and hence enable the IDPs to return to their home areas and engage in more productive activities such as farming with the view of addressing food insecurity,” he added.