Will China help out the West in Sudan?
By Peter Lee
Jan 28, 2012
China, which purchases much of the oil from East Africa and provides
investment and armaments to the Sudanese government in return, has suffered
abuse and derision for its engagement with Khartoum.
But perhaps only China has the deep pockets and appetite for risk to buy the
world's way out of its Sudan problem: a problem created largely by Western
fecklessness.
Sudan and newly independent South Sudan are sliding towards war because
these are two countries that hate each other; because Sudan lost 75% of its
oil fields when the South split off; and the regime of President Omar
al-Bashir in Khartoum is fighting for its survival.
Kind or stern words from Beijing will have minimal effect on Bashir, whose
decision to pursue a Muammar Gaddafi-style rapprochement with the United
States (yes, before the Libyan war, Gaddafi's abandonment of his weapons of
mass destruction programs and normalization of relations with the West was
seen as a victory of George W Bush-era big-stick diplomacy and a model for
other anxious strongmen) now looks more like assisted suicide.
Bashir is looking at drastic curtailment of government revenues, inflation,
burgeoning popular discontent, and prospects of Arab-Spring type unrest. To
add to his woes, he is under indictment by the International Criminal Court
for his brutal anti-insurgency operations in Darfur.
In response, Bashir is desperately cleaving to the Islamic governments of
north Africa and seizing oil fields on the border with South Sudan. He is
also fiddling with the passage of South Sudan crude in the pipeline crossing
Sudan to Port Sudan for export (to China and elsewhere).
He's also on a search for hard cash and leverage. The fact that South
Sudan's only export pipeline traverses Sudan to Port Sudan on the Red Sea
gives him both.
As was typical of the haste and "hope is not a plan" lack of forethought
surrounding the push for independence, the fact that South Sudan was 100%
reliant on the good offices of Sudan to get its crude to market (and relies
on oil for 98% of its non-non-governmental government revenues) was seen to
be something that could be comfortably addressed after partition.
The most recent crisis was triggered by Sudan's demand that South Sudan pay
exorbitant transit fees to move its crude through Sudan for export; and the
pre-emptive seizure of crude as assessment for unpaid (exorbitant) transit
fees. In response, the Government of South Sudan (GoSS) is shutting down the
output of its oil wells.
Maybe this intractable problem will be worked out when the presidents of
Sudan and South Sudan meet this week. But perhaps not, especially if the
Khartoum regime decides the best solution to its domestic problems lies in a
satisfying war with the South. Eric Reeves, the dean of Sudan-watchers,
wrote in a gloomy and indignant op-ed, Sudan's Obstructionism Threatens War:
But without a fundamental shift in the negotiating posture of Khartoum ...
the talks in Addis will break down on Friday (January 27) when Presidents
Salva Kiir and Omar al-Bashir are scheduled to meet. But we should keep in
mind the clear possibility that a collapse of these talks is in fact
deliberate on Khartoum's part: since an already highly distressed northern
economy would implode with the precipitous loss of all oil revenues from the
South, economic woes of all sorts could be collectively blamed on a hostile
and "belligerent" South.
The regime would blame this implosion not on its own gross mismanagement of
the economy, its vastly excessive military and security expenditures, or its
accrual of an unsustainable external debt of more than $38 billion - but
rather on the South. The generals in Khartoum who now make decisions about
war and peace will have their pretext for war - a war that will be
justified, in a grim irony, as punishing the South for its "economic
warfare" against the north. [1]
Reeves recites a grim litany of Sudanese bad faith and malfeasance and
concludes:
If war comes - and it almost daily appears more likely - it will be a war
emerging from the indifference, foolishness, and cowardice of an
international community that refuses to see the Khartoum regime for what it
is, or even to speak honestly about what it has done and continues to ... We
have reached the "brink of war" ... not because of what South Sudan has
done, but because of what the international community has not done.
Dr Reeves has previously advocated a blockade of Port Sudan to improve
Bashir's behavior.
However, an aggressive international response to pressure Bashir and avoid a
humanitarian catastrophe in the region appears unlikely. The centripetal
forces that the West set in motion with its support of South Sudanese
self-determination are too powerful, politically and economically, to be
undone.
A confrontation will probably be driven by economic and strategic
objectives, at the expense of the humanitarian goals Reeves advocates.
The dream of shared economic interests has been pretty much undone by
Khartoum's intransigence and abuse of its control over the pipeline to Port
Sudan.
Pointedly responding to Khartoum's interference with the existing pipeline,
the government of South Sudan concluded a much-anticipated deal with Kenya
to build a new pipeline south from its capital of Juba to the planned Kenyan
megaport of Lamu. When completed, it will remove much of the incentive for
civil economic and diplomatic relations between Sudan and Southern Sudan.
The government of South Sudan is also less likely to respond to Sudanese
petro-coercion and an economic crisis prompted by cessation of oil revenues
by rolling over militarily.
Thanks to assistance from its allies Kenya and Uganda and a blind eye from
the United States, South Sudan muscled up during the truce with Sudan (when
import of military materiel was supposedly prohibited), and has acquired an
estimated arsenal of 100 battle tanks, among other things. [2]
On January 6, United States President Barack Obama lifted restrictions on
sales of defense articles and defense services to South Sudan because doing
so "will strengthen the security of the United States and promote world
peace." [3]
In response to the oil transshipment crisis, South Sudan has put its army on
"maximum alert".
There is ample national unity and belligerence in South Sudan against Sudan,
and a willingness to pay the price to get out from under Khartoum's thumb.
But the price will be pretty steep if the confrontation escalates.
When South Sudan's President Salvo Kiir briefed parliament on the oil
crisis, he stated:
H E the President instructed the Ministry of Finance and Economic Planning
to initiate contingency plans for revenue collection and allocation and
accelerate the increase of non-oil revenues. He also said that safely,
security and health of the citizens of South Sudan remain top priorities.
[4]
Good luck with that.
Since the government relies almost entirely on oil revenues for 98% of its
non-aid funding, if its exports cease the West will find itself with a
significant and unwelcome financial responsibility to keep the government
and economy humming in Southern Sudan ... unless China steps in.
Zhang Jun, China's economic counselor in South Sudan, reportedly stated last
year that China could provide loans secured by resources to keep South Sudan
afloat while the pipeline to Lamu is built. That might take a while.
Optimists in Juba declare the pipeline to Lamu, the perceived magic bullet
for South Sudanese security and economic independence, can be built in 10
months in a crash program. Experts aren't so sure, per Reuters:
Analysts said a Kenya pipeline would be difficult to build across rough
terrain hit by tribal violence and also passing through bandit-stricken
regions in western Kenya.
South Sudan has said it would cost around US$1.5 billion, but analysts say a
hefty insurance premium would have to be added because of the security
concerns.
"It would be really difficult," said Dana Wilkins at Global Witness. "We're
looking at least a year or two because of the length of the pipeline, the
terrain it has to cover and security concerns in the region." [5]
If, in addition to advancing the direct cost of building the pipeline,
tensions with Sudan shut off the export pipeline to Port Sudan and required
that China front South Sudan's lost oil revenues for two years, China's
total exposure would approach $10 billion. It would take over 100 million
barrels of oil to pay that back - over two years' production ... during
which time the GoSS would still be relying on outside support to finance its
operations, so the bill would keep rising.
It would appear that the only way to get the pipeline built and get South
Sudanese oil out would be for China to obtain the forbearance of the
Sudanese regime, and keep South Sudanese oil and revenue flowing through
Port Sudan until the Luma pipeline is completed.
Khartoum, which presumably has been looking at the same figures as everybody
else and figured out what its control of the current pipeline is worth, has
apparently put a price on its forbearance: $15 billion over seven years
(plus, one would expect, a healthy amount of debt forgiveness from the
West). [6]
No wonder China is considered the key to successful resolution of the
crisis.
The West probably lacks the stomach to sit down with Bashir and offer him
$15 billion to assure the survival of South Sudan. So let China do it.
However, there's apparently not some huge bonanza of South Sudanese crude
waiting for China, as the Reuters article points out.
Oil experts have questioned the economic viability of a pipeline in the
medium-term as output is expected to fall sharply in coming years because
some fields were overpumped by Khartoum in the run-up to South Sudan's
independence.
South Sudan output will decline to 200,000 barrels per day (bpd) by 2016, to
160,000 by 2018 and further thereafter, according to estimates by the
European Coalition on Oil in Sudan, which is comprised of research groups,
non-governmental organizations and activists.
Some analysts say a pipeline would be viable only if new finds were made,
but exploration in the vast Jonglei state have been hampered by tribal
violence. France's Total holds a concession in Jonglei which is largely
unused due to violence.
"Production in Upper Nile peaked in 2010, Unity in 2005. Even if major new
fields were discovered today, it could be years before they come online in a
real way," Wilkins said.
Another wrinkle is that if/when the pipeline to Lamu is built, apparently at
Kenya's insistence it will supply a 120,000 bpd refinery whose output will
serve the East African market.
In this case Sudan/South Sudanese crude will dwindle from an already
less-than-critical 5% to an insignificant share of China's import slate.
For China, it boils down to a multi-billion dollar, multi-decade bet on
South Sudan, a failed state in ovo in the middle of a war zone - with
dwindling crude export capabilities.
Therefore, a unilateral Chinese bailout of the West's recklessly exposed
position in South Sudan is unlikely. All-out war between Sudan and South
Sudan also appears unlikely, at least for now.
As Reeves points out, the West has adopted the rhetoric of "moral
equivalence", wrongly implying that South Sudanese instransigence is as much
to blame for the crisis as Sudan's excessive demands.
This is presumably a signal that the South is being encouraged to knuckle
under and swallow the medicine Bashir's regime has prepared (perhaps
sweetened by concurrent subsidies to Juba by the West and China), so that
the peace process can continue to limp on.
The prognosis for South Sudan appears to be of a landlocked, weak state
whose overmatched government will serve as an arena for Western fantasies of
"capacity building" as a social and economic panacea; and, if it actually
overcomes its daunting security and economic problems and builds its
pipeline to Lamu, will primarily benefit Kenya, East Africa's leading power,
as a buffer state and source of raw materials and markets.
China may decide to minimize its exposure to Sudan and Southern Sudan in its
Africa portfolio accordingly.
Notes
1. <
http://www.sudantribune.com/Oil-Revenues-Controversy-Sudan-s,41395> Oil
Revenues Controversy: Sudan's obstructionism threatens war, Sudan Tribune,
January 25.
2. <
http://www.atimes.com/atimes/China/LI21Ad01.html> US, China brace for
Sudan trainwreck Asia Times Online, September 21, 2010.
3. <
http://www.alarabiya.net/articles/2012/01/06/186808.html> Obama lifts
ban on U.S. defense exports to South Sudan al-Arabiya, January 6.
4. <
http://allafrica.com/stories/201201260498.html> President's Speech On
Oil Crisis Tabled in Parliament allAfrica.com, January 25.
5.
<
http://www.reuters.com/article/2012/01/25/southsudan-kenya-idUSL5E8CP18T201
20125> S. Sudan halves oil output, signs pipeline deal Teuters, January 25.
6.
<
http://www.businessweek.com/news/2011-11-23/sudan-demands-15-billion-in-com
pensation-for-lost-southern-oil.html> Sudan Demands $15 Billion in
Compensation for Lost Southern Oil Bloomberg, November 23, 2011. Peter Lee
writes on East and South Asian affairs and their intersection with US
foreign policy.
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Received on Sat Jan 28 2012 - 20:00:41 EST
