Sudan seized oil worth $815 million, South Sudan says

JUBA (Reuters) - South Sudan said Monday it started shutting down oil production and accused Sudan of seizing $815 million worth of crude, escalating an increasingly bitter row over oil revenues between the former civil war foes.

South Sudan seceded last July under a 2005 peace deal that ended decades of civil war between north and south, but the two have remained locked in a dispute over how to untangle their oil industries.

The new landlocked nation needs to use a northern pipeline and the port of Port Sudan to export its crude but has failed to reach an agreement with Khartoum over a transit fee, prompting Sudan to start seizing oil as compensation.

South Sudan started shutting down oil output Sunday and expected to finish the process within two weeks, government spokesman Barnaba Marial Benjamin told Reuters by phone.

"The task force has been formed for the shutdown and they are already in the fields carrying out the instructions," he said, listing the Thar Jath field in Unity state as one field where the shutdown had begun.

Officials said in November South Sudan was producing about 350,000 barrels of oil per day.

China is the biggest buyer of oil from the two countries, some 12.99 million barrels last year. That amounted to five percent of last year's crude imports by China, which is also the top investor in South Sudan's oilfields.

South Sudan's President Salva Kiir accused Khartoum of having "looted" revenues amounting to roughly $815 million and building a tie-in pipeline to divert 120,000 barrels per day of southern production flowing through the north.

"Given our history with the administration of (Sudan's) President Bashir, we realize that, unfortunately, we must prepare for a disruption of revenue that could last many months," Kiir told parliament in Juba.

The justice ministry in South Sudan's capital Juba published a list of three vessels it said had been forced to load southern oil at Port Sudan on orders from Khartoum.

The MT Sea Sky loaded 605,784 barrels on January 13/14, the MT Al Nouf around 750,000 barrels on January 16/17 and the MT Ratna Shradha another 600,000 barrels on Jan 19/20, the ministry said.

Officials in Khartoum could not immediately be reached for comment. Foreign Minister Ali Ahmed Karti told Reuters last week that Khartoum was entitled to seize oil to compensate for transit fees.

South Sudanese officials have said they are planning to build a new pipeline to export oil through East Africa, but analysts have expressed skepticism because of the difficulty of carrying out such a project.

"The financial, technical, and political obstacles to the construction of an alternative pipeline are enormous," Jean-Baptiste Gallopin, an analyst at Control Risks, said.

"I have no doubt both Sudanese governments are under a lot of international pressure to reach an agreement, because the risks of conflict are real at this stage," Gallopin said.

NO END TO ROW

The two countries are expected to resume oil talks soon, sponsored by the African Union in Addis Ababa, after negotiations were suspended last week.

Sudan's President Omar Hassan al-Bashir said this month Khartoum would impose a fee since Juba had not paid anything for using northern export facilities since independence.

Khartoum is demanding $1 billion for fees since July and $36 a barrel as a transit fee, officials have said.

South Sudan's Kiir said his government was planning to reduce its dependence on oil revenues, which make up 98 percent of state income.

"We will need to find other sources of funding. In doing so I have instructed the ministry of finance to initiate contingency plans for revenue collection and allocation," he said.

Sudan's civil war devastated much of the south, leaving the new nation one of the least developed in the world.

The row with Sudan has stirred anger among some in South Sudan, where independence is often framed as the culmination of a long struggle against political and economic marginalization.

Underscoring those sentiments, around one thousand people marched to parliament Monday to support the government's decision to shut down oil production.

The crowd, mostly university students, cheered, waved their fists in the air and carried placards reading: "Looting our oil is a crime" and "We call on the international community to help the infant country."

(Reporting by Hereward Holland and Alexander Dziadosz; Writing by Ulf Laessing and Alexander Dziadosz, editing by Jane Baird and Jason Neely)