In recent days, disputes between the Republic of Sudan and South Sudan became more dramatic, as leaders of both states spoke publicly of the possibility of going to war, because of the oil crisis. The tone of the discourse escalated sharply, especially in the wake of the failure of the recent meeting in Addis Ababa. However, the two states reached an agreement yesterday that may ward off the specter of war. The main oil dispute lies in how oil revenues are divided between the Republic of Sudan and the southern state that seceded from it, including the transit fees that the South has to pay to Khartoum - which has been asking exaggerated amounts. This has pushed Juba to reject the fees, and halt production until a solution is reached. Juba has also entered negotiations with international companies to build another pipeline through Ethiopia or Kenya, directly to the coast of the Indian Ocean, thereby bypassing the Republic of Sudan and denying it transit revenues, which would go to another country. On February 3, Omar al-Bashir, in a clear escalation of the crisis between the two countries, said that his country is closer to war than to peace with the South. In a television interview, he also said that if war broke out after the loss of oil, then it will be a war of attrition, but one that hurts the South more than the North. Then on the seventh of February, President Salva Kiir said that his country is prepared for war and to confront the Northern army at the border, before it reaches the capital Juba. Khartoum took the statements of Salva Kiir as the beginning of a war orchestrated by Israel and other hostile parties. And as if those threats were not enough, the UN Secretary General Ban Ki-moon got involved, and following the failure of the talks in Addis Ababa, he stated that the situation between Sudan and South Sudan has reached a critical point, threatening peace and stability in the region. So why are threats being made, at this particular time? And what is the size of oil reserves in Sudan and their significance that may warrant another war? The main cause of the dispute is the transit fees for the export of oil from the South through the Republic of Sudan, into the Red Sea. The two sides have asked unreasonable or unheard of prices in the oil industry. For instance, Khartoum asked for 32 dollars per barrel, and then increased this amount to 36 dollars, which is much higher than usual transit fees, prompting Juba to reject payment of the due amounts. But Juba's offer was 70 cents for the barrel, also much lower than normal fees. No compromise was reached between these two disparate figures at the meeting in Addis Ababa, which was sponsored by the African Union in late last month. The rhetoric between the two sides then escalated, as well as hostile measures, as Juba halted production and accused Khartoum of ‘stealing' oil, while Khartoum accused Juba of failing to pay the fees due, and subsequently appropriated oil stocks to compensate the unpaid fees. What complicated matters even further was that South Sudan and Kenya have signed a Memorandum of Understanding for the construction of a pipeline that would carry the South's oil directly to the coast of the Indian Ocean, while Juba also held talks with international companies regarding another pipeline through Ethiopia, also to the Indian Ocean. Clearly, Khartoum considers these new pipelines to be an attempt by the South – where the important oil fields are located, to deny Khartoum precious oil revenues. Oil reserves in Sudan were estimated at 5 billion barrels at the end of 2007. The output in Sudan in 2007 was 460 thousand barrels per day, of which the South contributed about 350 thousand barrels per day. Due to sustained wars, the economic embargo and Western popular campaigns against the regime of President al-Bashir, as well as the abduction and murders of foreign oil workers (four Chevron employees were killed in 1992, pushing the company to withdraw from the country despite the oil finds it made at the time), Asian oil companies took over oil operations in Sudan (Chinese, Malaysian and Indian companies). In addition, China imported about 82 percent of Sudan's oil exports in 2007, followed by Japan at about 8.5 percent. Sudan has suffered more wars and devastation than many other Arab countries, and it has multiple problems: Ethnic/religious, internal mismanagement, ongoing internal wars, in addition to the burdensome colonialist legacy, sustained foreign intervention and corruption. All these problems have left their mark on the oil industry and its slow development, compared to other countries. Indeed, discoveries were first made in Sudan in the early seventies, but exports did not begin until 1999. What is worrisome is that oil exports helped boost Sudan's economy in recent years (about 5656 million dollars in 2006 and 8879 million dollars in 2007), and abruptly halting them may lead to dire political consequences. The African Union at the Addis Ababa meeting late last month attempted to negotiate with both sides to reach a compromise. It was proposed that Juba would pay a maximum of 6.5 billion dollars annually to Khartoum (including 2.6 billion dollars directly, and 1.1 billion dollars as transit fees), while taking into consideration that this agreement would last until 2014. The African Union promised to put forward another compromise before the end of the month, should their proposal be rejected by either side. Juba then indeed rejected the proposal, which was followed by an escalation in the rhetoric of the two sides, and even threats of a war of attrition, as Juba began recruiting youths for military service. What is required, of course, is reaching a compromise and avoiding war. This is still possible, despite the aggressiveness of the ‘fiery' statements that we have become sick of hearing from Arab ‘leaders', statements that are a sign of weakness, not strength, and which have only led to atrocities and destruction. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
