Petroleum

Oil Wealth Continues to Fuel Conflict in South Sudan

The World’s Newest Country

Oil was one of the main driving forces that led to the creation of South Sudan. On July 9th, 2011, South Sudan became the world’s newest nation after breaking away from its northern neighbor, Sudan. Since it was first established as a sovereign nation, South Sudan has become a petrostate. Petrostates are known as governments that are heavily dependent on revenue from oil and gas production. Saudi Arabia, Russia, Venezuela, and Nigeria are also known as petrostates. While some petrostates have found significant success in oil and gas production, others have been plagued with tremendous political and economic ramifications as a result of fossil fuel production. South Sudan is a petrostate that has become riddled with conflicts created by the world’s thirst for oil and gas resources.

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The Development of a Petrostate

The history of South Sudan has provided a unique perspective into the political and economic impacts of oil and gas production. The convoluted relationship between the presence of fossil fuel resources, infrastructure, and economics often contributes to the so-called “natural resource curse.” The premise surrounding the notion of the natural resource curse is that wealth that is rapidly generated from an abundance of natural resources has the ability to undermine a nation’s economic stability and democracy.

Resource-rich countries like Bolivia, Venezuela, Sierra Leone, and Russia are prime examples of countries that have been accused of using wealth generated from natural resources to fuel corruption and economic inequality. Through the evaluation of the socioeconomic implications of fossil fuel production in these countries, it’s easy to see how a new country like South Sudan could fall victim to the same level of conflict and corruption.

While countries like Norway, Qatar and the United Arab Emirates have found enormous socioeconomic success from oil and gas resources, South Sudan is heading down the path of less successful countries like Russia and Venezuela. As a result of the massive dependence on oil and gas for economic growth, Russia and Venezuela have consistently undergone a series of dramatic boom and bust periods. In Russia’s case, the combination of massive oil, gas, and coal reserves, combined with ineffective public institutions, have produced significant levels of poverty, exacerbated inequality, and incentivized government corruption. The story is similar for Venezuela. While the country holds more oil reserves than any other nation in the world, years of mismanagement and corruption has led the Venezuelan economy down a path of destruction.

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Pre-Oil Tensions

Oil resources have been essential throughout South Sudan’s nation-building process. However, even before oil was discovered, Sudan and South Sudan shared a convoluted political history filled with violence, mistrust, and economic exploitation (Pedersen & Bazilian, 2014). The incremental rise of the region’s oil and gas industry sharply heightened the tension within the borders of Sudan. The tenuous relationship between the north and the south dates back many generations to the occupation of the Ottoman Empire during the early 1800s, followed by issues related to British colonialism. After Sudan became an independent country in 1956, issues erupted between the Arabic-speaking Muslim government in the north and the deeply rooted African cultures of the south. The Sudanese Civil War then broke out and lasted until 1972, when a peace agreement was ratified in neighboring Ethiopia. However, the peace didn’t last long following the discovery of large oil reserves in the southern part of the country.

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Oil and Conflict

Oil exploration began in Sudan during the 1960s along the coastal waters of the Sudanese continental shelf within the Red Sea. However, it wasn’t until 1978 when American energy giant Chevron made a massive discovery in Unity State, within the Greater Upper Nile region of Sudan (Moro, 2009). In an attempt to better control the wealth generated by the newly discovered oil reserves, Sudanese government officials attempted to redraw the country’s borders in 1980 to shift the oil wealth to the northern regions. While this plan was never realized, it further exacerbated the conflict between the north and the south.

After the central government introduced Sharia Law (an Islamic legal system derived from the religious principles of Islam) in 1983, the Sudan People’s Liberation Army (SPLA) was formed out of a guerilla movement, which ultimately sparked the second civil war that lasted until 2005. The conflict related to borders and oil wealth became immensely intertwined with economic development and social issues.

An investigation into the relationship between conflict and oil development in the Western Upper Nile region of Sudan found that oil revenues have been largely funneled into increasing military expenditures and military actions rather than funding initiatives related to economic development and social programs (Pedersen & Bazilian, 2014). Moreover, when oil wealth was channeled into economic development activities, studies have found that the funding has historically been dedicated to strengthening economic and social conditions in the north (Shankleman, 2011).

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Peace Agreement

In 2005, the government and the Sudan People’s Liberation Movement (SPLM) signed a peace agreement aimed at establishing a semi-autonomous regional state for the south. While the agreement did not intend to establish guidelines related to oil and gas ownership, it ended up laying the foundation for future agreements related to sharing oil revenues. The National Petroleum Commission was also formed to oversee oil and gas leases, while also ensuring that the north and the south would benefit jointly from selling these natural resources. While the wealth sharing agreements functioned for several years, renewed tensions arose when the north was accused of draining the majority of each region’s oil income for the benefit of national elections (Pedersen & Bazilian, 2014). As trust continued to erode, a referendum took place in 2011 that moved towards secession and the creation of South Sudan.

For decades, armed conflicts between the north and the south prevented Sudan as a whole from becoming a global leader in oil and gas production. After a major regime-shift in 1989, Chevron was forced to sell its oil concessions, which led smaller and less organized independent oil companies to move in and take control of oil operations (Shankleman, 2011). A group of independent oil companies formed the Greater Nile Petroleum Operating Corporation (GNPOC) in an attempt to come together to better develop oil reserves. However, due to weak oversight and a lack of sustained organization, the GNPOC was ultimately unsuccessful at moving Sudan’s oil production into the modern age.

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Continued Conflict and Corruption

As South Sudan has become its own sovereign nation, the oil production situation has continued to fuel conflict and corruption. According to a report from the United Nations Commission on Human Rights in South Sudan, the state-owned oil company has demonstrated a complete lack of transparency and independent oversight in terms of its efforts to stop oil revenues from going into the hands of elite government officials (Campbell, 2019).

The report outlines how the Nile Petroleum Corporation had been deliberately structured to facilitate autocratic control. While South Sudan produces roughly 90 million barrels of oil annually, the vast majority of oil wealth has been misallocated (Campbell, 2019). According to 2010 data, Sudan as a whole produced approximately 0.57 percent of the world’s oil and 4.5 percent of all of Africa’s oil, making the region the sixth largest producer on the continent after Nigeria (23 percent), Angola (19 percent), Algeria (18 percent), Libya (17 percent), and Egypt (7 percent) (Pedersen & Bazilian, 2014).

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The Importance of Oil Revenue

Oil revenue is critical for South Sudan. In 2019, oil revenue accounted for over 98 percent of the country’s total budget (Campbell, 2019). Since the country relies so heavily on export revenues, the vast majority of the oil is shipped to other countries around the world, with little supplies dedicated for the country itself. As a result of this export dominance, average South Sudanese citizens struggle to gain access to any fuel. Moreover, when gasoline is accessible, it averages around $9 per gallon (Campbell, 2019).

The deeply rooted oil corruption in South Sudan has led the U.S. Commerce Department to designate all foreign and domestic oil companies working in South Sudan as U.S. national security threats. Even with this designation, Southeast Asian companies like the Indian Oil and Natural Gas Corporation, Petronas of Malaysia, and the Chinese National Petroleum Company continue to conduct operations in South Sudan.

Avoiding the Resource Curse

As South Sudan has emerged as the world’s newest nation, the country seems to be poised to take a similar path as other conflict-ridden petrostates. While it may be premature to label South Sudan as a victim of the natural resource curse, the country’s economy shows symptoms of its demise. The poor performance of non-oil exports, coupled with a massively bloated local currency, show that the short-term impact of oil production has failed to achieve sustainable economic growth. Instead, oil has financed increasing levels of military conflict.

Oil revenues have fueled the continuation of battles between Sudan and South Sudan. A team of investigative policy analysts released a report in 2019 that detailed how the civil war was largely financed by oil revenue (Specia, 2019). Instead of using oil revenue to combat widespread poverty, reduce inflation, and improve public services, the report highlights how oil financed a corrupt neo-patrimonial regime that was focused on funding wars. While South Sudan has oil reserves that are estimated to contain upwards of 375,000 billion barrels of crude oil, the wealth from this oil has been used to finance a government ruled by corrupt politicians who have been using their political authority to facilitate bribery and fraud at the expense of the general population.

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Little Hope for Change

Wars between Sudan and South Sudan have resulted in nearly 400,000 deaths, displaced over 1.75 million people, and created hundreds of thousands of refugees (Specia, 2019). When South Sudan gained independence in 2011, there was immense hope that oil wealth would foster a brighter future and widespread economic prosperity. However, the convoluted and inter-connected issues that come with natural resource management, production, and revenue sharing have continued to fuel violence, corruption, and political weakness. Continued ethnic conflicts, not just with the north, but within South Sudan itself, threaten to create another civil war. Since January of 2014, violence has erupted throughout the majority of South Sudan’s political states. The entangled relationship between oil resources and conflict continues to fuel extraordinary levels of instability.

Despite high levels of oil revenue, South Sudan is still known as one of the poorest and most conflict-prone nations in the world (Yugusuk, 2018). The lack of stable political institutions and general oversight of the oil and gas industry has resulted in the mismanagement of natural resource revenue and a rise in internal conflicts. In order to prevent the continued demise of South Sudan’s political and economic climate, it will be imperative for the country’s leaders to establish robust legislation related to revenue management and, specifically, the management of oil income. However, given that many of the country’s political leaders have benefited tremendously from the current system, it may take a coalition of international support to stimulate a future characterized by accountability and transparency.

Sources

Campbell, J. (2019). “How Oil Companies Help Fund Violence in South Sudan.” Council on Foreign Relations.

Moro, L. (2009). “Oil Development Induced Displacement in Sudan.” University of Durham, Center for Middle Eastern and Islamic Studies.

Patey, L. (2017). “Learning in Africa: China’s Overseas Oil Investments in Sudan and South Sudan.” Journal of Contemporary China: Volume 26, Issue 107, Pages 756-768.

Pedersen, A., & Bazilian, M. (2014). “Considering the impact of oil politics on nation building in the Republic of South Sudan.” The Extractive Industries and Society: Volume 1, Issue 2, Pages 163-175.

Shankleman, J. (2011). “Oil and State Building in South Sudan: New Country, Old Industry.” Special Report of the United States Institute for Peace.

Specia, M. (2019). “South Sudan Oil Consortium Funded Militias Accused of Atrocities, Report Says.” The New York Times.

Yugusuk, H. (2018). “Impact of Oil Revenue on Economic Prosperity in South Sudan.” Journal of International Trade, Logistics and Law: Volume 4, Issue 12, Pages 18-24.

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