Impact of Sanctions on South Sudanese Oil Industry

The United States imposed sanctions on Sudan in 1997 during the presidency of Bill Clinton, prohibiting transactions in Sudan’s petroleum and petrochemical industries in response to the Khartoum government’s support for terrorism and human rights violations. Those sanctions were extended by the administration of George W. Bush in 2007 and again in November 2011 by Barack Obama, with adjustments made to allow trade with the newly independent South Sudan.

However, the intricate linkage between the oil sectors of South Sudan and Sudan - most oil fields are located in South Sudan, but the refineries and pipelines are in Sudan - have made it difficult to selectively lift sanctions to minimize the impact on South Sudan.

=Impacts on South Sudan= US sanctions have prevented firms in the US, Europe and some in Asia from investing in South Sudan’s oil industry because such activity could benefit the government in Khartoum, according to the Washington Times, and businesses from China, India and Malaysia - China National Petroleum Corporation (CNPC), ONGC and Petronas, predominantly - have capitalized on the absence of US competitors and come to dominate the South Sudanese oil sector.

A major economic impact of the sanctions regime was how it limited South Sudan's ability to sell its low quality Dar Blend of crude oil. The number of refineries capable of processing Dar Blend was limited to begin with, and sanctions, which prevented sales to US refineries that could process Dar Blend, further complicated the task of trading the crude. With a large slice of the global refining capacity in the US and Europe off-limits to Sudanese Dar blend crude, the prices South Sudan obtained for this oil were significantly lower than average, according to the Royal African Society.

Figures revealed by Sudan’s State Minister of Finance Lual Deng, speaking at a conference in Washington, DC in April 2009, showed that South Sudan's Dar Blend was at the time being traded at just under a 60 percent discount off spot prices offered for oil of a similar quality – representing an annualized estimated loss of revenues to the South Sudanese government of some US $690 million, or roughly 40 percent of its budget expenditure estimate for 2009.

This loss in oil revenues, the Royal African Society wrote in May 2009, had significant implications for the stability and security of South Sudan, citing the government's inability to pay salaries to most of its military personnel in the Sudan People's Liberation Army (SPLA) since January of that year.

=Lifting of sanctions on South Sudan= On 8 December 2011, an order from the US treasury department signalled a re-interpretation of the existing sanctions regime. The new licenses allow transactions in South Sudan’s industry and the transfer of goods through Sudan (to or from South Sudan), insofar as they afford "maximum benefit to the South and minimum benefit to the North". South Sudan’s ambassador in Washington, Ezekiel Lol Gatkuoth, responded that the Treasury’s action was "excellent news," adding, "This is something we have been asking the State Department, the Treasury, the White House to do."

In March 2012, US President Barack Obama also declared South Sudan eligible for a preferential trade program, the Generalised System of Preferences. As of April 2012, South Sudan's eligibility for the African Growth and Opportunity Act was pending. Crisis Group Africa suggested in an April 2012 report that South Sudan's freedom from sanctions may eventually draw Western companies back to the oil sector, where China currently dominates.

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