S Sudan starts shutting down oil production
24 January 2012, 16:52
Juba - South Sudan has ordered oil companies to shut
down oil production within two weeks, a response to the new country's
allegations that Sudan has stolen $815m worth of the south's oil,
government officials said.
The shutdown could lead to a tightening of the world's oil supply and cause prices to rise.
companies in South Sudan began shutting down operations on Sunday and
have two weeks to complete the process, since oil production cannot be
easily stopped, South Sudan Minister of Information Barnaba Marial
Benjamin said on Monday.
South Sudan — which broke away from
Sudan last July to form the world's newest country — must pump its oil
through Sudan's pipelines. However, the two countries have never agreed
on the transit fees that South Sudan should pay Khartoum.
the last several weeks South Sudan has made repeated accusations that
Sudan is stealing massive amounts of its oil, which Benjamin cited as
the reason the south has decided to halt production.
address on Monday to the South Sudan's National Assembly, President
Salva Kiir said Sudan has already taken $815m worth of southern oil. He
said the decision to stop oil production came only after his country
approached Kenya, Uganda and Ethiopia for help in economic negotiations
between Sudan and South Sudan.
"The presidents of those countries
reached out to President Bashir asking him to stop taking unilateral
decisions in regards to our oil. The response from President Bashir is
that he will not stop taking oil until we pay what he says — $32.20 per
barrel," Kiir said.
A research note from Commerzbank said South Sudan produces about 350 000 barrels of oil per day.
prolonged discontinuation of South Sudan's oil production, in
combination with the partial shortfall in Iranian oil exports, could
lead to a tightening of supply on the oil market and cause prices to
rise still further," Commerzbank said.
In December, Sudan began
taking southern oil arriving at Port Sudan as an "in kind" payment. This
month, a tie-in pipeline was built that South Sudanese officials say is
diverting around 120 000 barrels of southern oil per day.
Sudan originally offered 70c per barrel to use Sudan's pipelines. Oil
Minister Stephen Dhieu Dau said on Friday that South Sudan was willing
to pay up to $1 for the use of the pipelines.
Almost all of South Sudan's government revenue — 98% of it — comes from the oil sector.
is not immediately clear how South Sudan will manage during the
shutdown. But Kiir said the shutdown was necessary to protect South
Sudan's natural resources.
"At this time we have no guarantee that oil flowing through the Republic of Sudan will reach its intended destination," he said.
asked parliament to enact an austerity programme in anticipation of the
shortfall. He did not give specifics. In the short term, Kiir said the
government would be able to function.
existing cash reserves, rest assured that the government can operate
for the immediate future depending on which cuts are made," he said.
a separate statement, South Sudan said it was beginning investigations
into the stolen oil and put ship owners and potential buyers of stolen
oil on notice. It said the stolen oil is undermining its economic
development and its rights under international law and national
The owners of four vessels that the oil was loaded
onto, the South Sudan government said, "are being treated as trafficking
in stolen goods."
The oil negotiations taking place in Ethiopia
are part of a host of unresolved issues left from the 2005 Comprehensive
Peace Agreement, a deal that ended decades of civil war between the two
countries. The talks have continued for over one year with little