China Brokers Tentative Oil Agreement Between The Sudans

Via Foreign Policy, an interesting look at China’s role in brokering a tentative oil agreement between the Sudans:

China — a growing diplomatic powerhouse in Africa — played a vital role in securing a preliminary agreement on transit fees for hundred of thousands of barrels of oil being piped from South Sudan’s oil fields through Sudan to Port Sudan, South Sudan’s Foreign Minister Nhial Deng told Turtle Bay.

It remains unclear, though, when South Sudan’s oil taps will reopen — since both Sudan and South Sudan have said that their willingness to implement the oil deal requires agreements on security, borders, and the use of proxy militias. But the deal provided a rare example of China using its diplomatic muscle to prod Khartoum into action, according to Deng.

“We strongly believe that this deal would not have been possible without China in the background basically pushing for such an agreement,” Deng said in an interview at the headquarters of South Sudan’s new mission to the United Nations.

China, the largest consumer of Sudanese oil, has long served as Sudan’s most valuable international supporter at the United Nations, where it has routinely blocked Western efforts to impose sanctions on the government.

But Beijing has been forced to play a more nuanced diplomatic role after the country split in two in January 2011, placing more than 70 percent of the country’s oil in the newly independent South Sudan, but making the landlocked south dependent on a network of pipelines that cross through Sudan to the Port of Sudan.

China has previously been called on to use its influence on Khartoum to secure peace deals in previous crises in Sudan. On the eve of the 2008 Beijing Olympics, facing pressure to rein in Sudan’s abuses in Darfur, Beijing prodded Sudanese President Omar al-Bashir into accepting the deployment of a U.N.-African Union peacekeeping mission.

That was humanitarian pressure, but the latest dispute is hitting China’s pocketbook.

Last year, exports from Sudan and South Sudan averaged about 330,000 barrels per day, most of which went to Asian markets. And more than two-thirds of the two Sudans exports — around 220,000 barrels per day — went to China.   

China’s access to Sudanese crude has been sharply curtailed this year as a result of a bitter dispute over oil transit fees that culminated in a decision by South Sudan to shut down its oil production in January. Khartoum demanded its southern neighbor pay $32 to $36 per barrel in transit fees for piping the oil through Sudan; the South said it would pay only $1 dollar per barrel, which is more in line with standard international rates. Last December, Sudan began diverting some of the south’s highest grade crude to refineries in the north.

South Sudan claims that it was forced to shut down its oil production because Sudan had stolen more than $800 million in oil revenue.

Beijing has assigned a special envoy to persuade the two sides to reach agreement on a range of political issues.

But until recently, China has done little, according to Deng.

“The thing is we always believed and rightfully so that China has considerable leverage over Sudan,” Deng said. “The only thing is that China has chosen not to use it. We have been trying to urge them [to apply pressure on Khartoum]. Since the stoppage of the oil effects their own economic interests it would only be logical that they should use some of that leverage to get the oil flowing again, perhaps they have been a little more forthcoming recently.”

Deng declined to elaborate on China’s role except to say: “They have been talking to them [Khartoum] they have been talking to them; let’s just put it that way. It’s quite clear that if anybody who can make the Republic of Sudan really accept a deal on oil it is China.”

The developments come nearly four months after President Salva Kiir traveled to Beijing in April for his first visit as a South Sudan’s leader to China, where he pressed President Hu Jintao to extend loan guarantees for the construction of a new pipeline through Kenya, bypassing Sudan. China rejected the request on the grounds that there was already a perfectly good pipeline heading through Sudan.

Despite the setback, Deng said the meeting went well.

“The main purpose of that meeting was to put the relationship between South Sudan and China on a more formal footing. It was basically the inauguration of the establishment of formal ties between China and the Republic of South Sudan.”

Asked if the visit made a difference in China’s approach to the dispute between South Sudan and Sudan, he said, “I really wouldn’t be able to comment on that except just to say China will pursue its interests. What its interests dictate China will do.”

The latest oil pact — which was negotiated under the auspices of the African Union mediator, former South African President Thabo Mbeki — will require South Sudan pay nearly $8.5 dollars per barrel in combined fees to Sudan, and additionally pay Khartoum more than $3 billion over the next three and a half years to compensate for the loss of its oil.

The agreement followed a threat in May by the U.N. Security Council that it would impose sanctions on both sides if they failed to stop fighting and settle their differences within three months. The deadline passed earlier this month without a deal, but the parties are expected to resume talks around August 22, which are expected to last four weeks, and will hopefully culminate with a summit.

Meanwhile, Deng said that South Sudan would not reopen it oil taps until such a comprehensive deal is concluded, including agreements on borders, security, and the fate of the disputed territory of Abyei. It would then take another three to six months to resume production at full capacity.

But Deng said he is convinced the council won’t act on the threat.

“I think the international community is not yet ready to take any serious action against  Sudan,” he said. “Obviously there is a lot of interest in oil flowing again because of what is at stake economically for countries that have invested resources. There is also a sense that the Bashir regime should be preserved because you don’t know what the alternative would be.”

This entry was posted on Wednesday, August 15th, 2012 at 6:18 am and is filed under China, Sudan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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