The Price of Oil

via BBC News – Ban Ki-moon condemns Sudanese air raid on South Sudan.

The past few months have seen sporadic fighting in the oil-rich areas along the two countries’ undemarcated border, prompting concern the violence could escalate into a full-blown war.

When South Sudan voted for independence, they knew they would have a steady income – oil.  The problem lies in selling it, however.  Because the new country is landlocked, it relies on pipelines through Sudan to ports on the Red Sea.

In January, South Sudan decided to shut down oil production, which provides 98% of the government’s revenue, after Khartoum impounded South Sudanese oil shipments amid a dispute over transit fees.

The growing dispute has escalated into air raids and ground fighting in areas along the border.  If it is not resolved soon, a repeat of the 22 year long civil war is possible.

Meanwhile, South Sudan’s President Kiir has arrived in China for a six-day visit during which he will meet his Chinese counterpart, Hu Jintao.

China has traditionally been an ally of diplomatically-isolated Sudan, but observers say Chinese officials are likely to push for an end to hostilities between the two countries.

China is the major buyer of Sudanese oil, so they have a vested interest in solving the problem quickly.  Sudan takes almost a quarter of the South’s oil as payment for export fees.  Since the oil is the main source of government revenue in the desperately poor nation,  South Sudan is upset with what they call the “theft.”

How will this crisis be resolved?  What effect will the dispute have on oil prices?  How many more refugees will leave their homes due to the fighting?  And how will the South Sudan government pay for all the infrastructure they need if they can’t export their oil?

The following is from Human Rights Watch, via Nicholas Kristof