The Sudanese president Omar Hassan al-Bashir on Tuesday threatened to shut down the pipelines that transfer oil from the landlocked South to Port Sudan on the Red Sea unless a revenue sharing deal is reached by next month.
South Sudan is a little over two weeks away from declaring its independence officially which came after the referendum held last January which resulted in an almost unanimous vote in favor of secession from the North.
But several contentious post-referendum arrangements have yet to be agreed on between the ex-foes mainly including border demarcation, citizenship, splitting national debt and oil sharing. The latter is a sensitive issue as both sides are largely dependent on oil proceeds to fund their budgets.
The ruling National Congress Parity (NCP) and Sudan people Liberation Movement (SPLM) are negotiating a compromise on those items among others with the mediation efforts of the African Union (AU) in the Ethiopian capital.
While the south holds around 75% of Sudan’s oil reserves, the north has the refineries and pipelines. The south needs Khartoum’s co-operation to sell its oil; the north needs revenues from its neighbor’s resources.
Currently the North and the South are splitting the proceeds of crude in accordance with the terms of the Comprehensive Peace Agreement (CPA) signed in 2005.
Southern officials initially said that they could temporarily continue the oil sharing formula but as relations between the NCP and SPLM deteriorated sharply in recent months the idea was dropped.
Today the Sudanese leader said that Southerners have three options with regard to the oil.
“I give the south three alternatives for the oil….either the north continues getting its share, or we gets fees for every barrel that the south sends to Port Sudan,” Bashir told supporters at a rally in Port Sudan.
“If they [Southerners] don’t accept that, we’re going to shut down the pipeline,” he added.
Bashir slammed statements by Southern officials in which they threatened to deny the North “even a single gallon of oil”.
“We will not beg or accept their conditions. Our choices are known to them; splitting [oil revenue] or our full right in the oil that passes through our land or let them find another exporting alternative,” he said.
South Sudan president Salva Kiir has reportedly discussed with Kenya’s president Mwai Kibaki this month the possibility of using Kenyan ports to export its oil. However, some analysts have questioned the feasibility of such a venture.
Officials in North Sudan have stepped up their warnings over the economic impact of the South’s secession on the economy.
Last week the minister of finance and national economy Ali Mahmood Hassanein said that the North will lose 36.5% of its income after the South splits from the north. He said there are contingency plans in place that aim to cushion the fallout.
Currently the economy in the North is marred by soaring inflation rates and chronic shortage in hard currency. Furthermore, Sudan has a crippling $38 billion in external debt.
The International Monetary Fund (IMF) in a report released last April said that the North “will need to adjust to a permanent shock” particularly given the limited access to external financing. Sudan is under comprehensive economic sanctions since 1997.
“With oil revenue constituting more than half of government revenue and 90 percent of exports, the economy will need to adjust to a permanent shock, particularly at a time when the country has little access to external financing. The size and nature of the necessary adjustment could have significant implications for growth and macroeconomic stability”, said the IMF report.
Under that scenario, it is also assumed that North Sudan will witness a 10% decline in non-oil GDP to reflect the share of the South in total non-oil economic activity as well as a decline in oil related services; an increase in service receipts to reflect the transportation fees charged for the transportation of South’s share of oil; a decline in both transportation payments and investment income payments to reflect lower oil production; a decline in imports of goods to reflect the shares of the oil sector and the South; an increase in imports of petroleum products to reflect the shortfall in domestic production..
To confront this scenario, the IMF stressed that North Sudan will need to reduce spending, lift fuel subsidies, reduce tax exemptions and enhance revenue administration.