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South Sudan to halt oil production over dispute with Sudan

By Alan Boswell, McClatchy Newspapers –

NAIROBI, Kenya — South Sudan moved Friday to shut down its oil production, the latest development in an epic game of double-dare that threatens not only South Sudan’s economy but also that of its neighbor and antagonist, Sudan, just six months after the world heralded the peaceful split of the old Sudan with fanfare and hurrahs.

If implemented, the shutdown of oil production would deprive the infant South Sudan of virtually its only source of revenue and would bite a major hole in Sudan’s budget, already deeply in red after its southern third seceded.

South Sudan had no choice but to act after Sudan “stole” $350 million worth of petroleum in the past three weeks and blocked South Sudan’s international buyers from loading their shipments in the Red Sea, said Barnaba Marial Benjamin, South Sudan’s minister of information.

“Our oil is no longer safe as it passes through Khartoum,” Benjamin said in a phone interview from Juba, South Sudan’s capital. Khartoum is the capital of Sudan.

Benjamin said South Sudan planned to sue in international court companies that had bought oil from Sudan. He didn’t identify the companies.

Sudan announced in November that it would begin confiscating a portion of South Sudan’s oil exports as payment for its use of two pipelines that run through Sudan and meet in Khartoum before continuing to the Red Sea. The pipelines, one of which is nearly 1,000 miles long, are the only way for South Sudan’s oil to reach its customers.

Sudan’s announcement came after talks led by former South African President Thabo Mbeki failed to bridge the two sides’ positions. South Sudan said Sudan’s seizure of the oil, which customers already had paid for, was unjustified because South Sudan had continued paying regular transportation and processing fees.

Benjamin said the date of the shutdown was a “technical issue” contingent only on the oil minister making sure that the process limited environmental damage.

Oil experts and diplomats long have warned that stopping the flow through the pipeline could render it unusable in the future, since South Sudan’s oil is a particularly dense blend, known as Dar, that would settle and clog the tube. That technical problem also has made it difficult for Sudan to block oil exports without the possibility of destroying its only remaining link to the southern fields, which it still hopes to benefit from.

South Sudan plans to get around this obstacle by flushing the tube with water, said a diplomat familiar with the issue who wasn’t authorized to speak on the record.

South Sudan is serious about its decision and doesn’t appear to be bluffing, according to the diplomat.

The abrupt turn of events exposes the complicated role that oil plays in Sudanese politics. Oil helped fuel the long civil war, but it also — through a promised revenue-sharing arrangement — provided a strong incentive for peace. Many analysts credited the two sides’ oil ties as a major reason that Sudan was able to split without erupting in another bloodbath.

But the diplomatic standoff has turned what many thought would be a win for both countries into a showdown that could push both off an economic cliff, with neither benefiting from oil sales.

Analysts were uncertain that either country would back down, a situation that would have far-reaching and unpredictable consequences.

Outside of oil, South Sudan has almost no economy to speak of, and there’s no other revenue stream for the government to tap into. If its coffers dry up, it will struggle to pay for its bloated army of more than 100,000, and it will be unable to make crucial investments in building roads, schools and health networks from scratch.

Sudan, meanwhile, is facing a budget gap of billions of dollars in the next several years.

The two countries have been meeting this week in Addis Ababa, Ethiopia, to try to work out a deal. At the last session, Sudan demanded a $36-per-barrel fee, a charge well above any other precedent set around the world.

The U.S. and other Western nations, which played a significant role in brokering the 2005 peace deal, aren’t directly involved in the negotiations.

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