Burst Oil Pipeline Risks South Sudan Violence, Economic Meltdown

(Bloomberg) -- A broken pipeline that exports about two-thirds of South Sudan’s crude production could heighten the risk of renewed fighting in the world’s newest nation if not repaired urgently, according to the International Crisis Group.

Most Read from Bloomberg

South Sudan, which declared independence from Sudan in 2011, still relies on its northern neighbor to ship its oil, the source of almost all government revenue. But Sudan’s yearlong civil war has resulted in damage to one of two pipelines after a lack of diesel to thin out the crude caused it to rupture.

Read More: Sudan Ravaged by a Civil War the World Has Overlooked: QuickTake

Production from the Dar Petroleum Operating Co., South Sudan’s main consortium in which China National Petroleum Corp. holds a 41% stake and Malaysia’s Petroliam Nasional Bhd a 40% shareholding, plummeted in March, government data shows. Output was 761,000 barrels, compared with 3.13 million barrels in February.

Without oil income, fears are mounting that the country that’s already home to 7.1 million people with acute hunger could plunge into deeper economic crisis and see political tensions heighten, the Brussels-based ICG said in a report released on Wednesday.

“Oil is the glue that holds South Sudan’s rivalrous political elites together even as it also finances much of the country’s chronic violence,” according to the report. “Most of the wealth accrued from oil exports does not benefit the public. Rather, the proceeds underwrite a violent patronage network that President Salva Kiir uses to maintain an uneasy overall peace.”

No Salaries

Without the oil money, Kiir’s government will struggle to keep the nation’s security elites in check, the ICG said.

Civil servants have not received salaries since October and the South Sudanese pound has lost almost half its value against the dollar this year. Humanitarian groups say aid is now subject to new levies as the government tries to fill state coffers, according to the report.

The dramatic fall in oil revenues resulted in cash reserves falling to “historically low levels,” central bank Governor James Alic Garang said earlier this month.

The 1,400 km (870 miles) pipeline that’s partly damaged connects South Sudan’s Melut Basin oil fields to Port Sudan and traverses territory controlled by the paramilitary Rapid Support Forces.

It transports about 60% of South Sudan’s oil production and “will require months of complex repairs that must be made amid active combat,” the ICG said.

An RSF spokesperson did not reply to questions regarding the pipeline.

“With the oil money stopping it is going to create serious problems and a lot of insecurity. What happened in Khartoum could definitely happen in South Sudan,” said Oyay Deng Ajak, a former chief of staff of the South Sudanese army.

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.