Oil diplomacy is making very little headway in resolving issues between Sudan and the recently independent South Sudan, with both sides gearing more toward another war than to peace.
"The situation in Sudan and South Sudan has reached a critical point, it has become a major threat to peace and security across the region," said United Nations Sec.-Gen. Ban-ki Moon at a recent African Union summit in Ethiopia.
Tensions are especially high over oil. South Sudan said it nearly completed a drastic shutdown of its entire oil production as talks with Sudan over an oil dispute remain stalled.
The consequences of the shutdown are not incidental.
Tighter supply situation
"It will be a challenge to try to meet the shortfall in supply due to this sudden disruption as the overall quantity is not really that small," said Victor Shum, senior partner at oil consultancy Purvin & Gertz. "Overall, this is a tighter supply situation for Asian refiners."
The South's shutdown has in fact cut off supplies to equity holders China National Petroleum Corp., Malaysia's Petronas, and India's Oil & Natural Gas Corp.
"We expect some disruption in loading schedules with the production shutdown," an official with one of the equity holders said. "We hope for a resolution soon."
That may be a while, and the concern is that war could break out between the two sides in the meantime. The dispute turns largely on the oil reserves of South Sudan—a land-locked state—and their transport to market.
Last year, nearly 99% of southerners voted in a referendum to break free from control by the north. With the vote, South Sudan took 75% of the country's oil when it split from Sudan.
But Sudan still owns and controls all pipeline and export facilities, giving it complete leverage over South Sudan. Indeed, the current impasse arose due to the high transit fees that Sudan claims for South Sudan's oil.
Proxy war?
Further trouble is brewing over the two countries' undemarcated border, which cuts through oil fields, as well as over mutual allegations that each side backs proxy rebel forces against the other.
South Sudan last week accused Khartoum of bombing territory in areas where northern refugees are fleeing civil war in Sudan's Blue Nile and Southern Kordofan state.
South Sudanese forces responded by capturing some 29 Chinese workers after a battle with Sudanese forces—a result that did not sit well with Beijing.
"Chinese companies should closely monitor changes in the country's security situation and take stronger precautions to ensure the safety of lives and property," said China's Ministry of Commerce.
Will the proxy war soon erupt into something else?
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