Angry South Sudan shuts down 900 oil wells

JUBA, South Sudan, Jan. 26 (UPI) -- South Sudan, born six months ago, says it's shutting down more than 900 oil wells after accusing its former masters in Khartoum of stealing its oil piped north for export.

The shutdown is a bold, some might say almost suicidal, move by the world's newest state, which depends on oil for 98 percent of state revenue.

But it reflects the frustration and anger in the south at what is widely seen as the Machiavellian machinations of Khartoum to sabotage the breakaway state that sits on 75 percent of Sudan's oil.

The dispute could trigger new violence. The Financial Times said "the reduction in supply may prompt a rise in global prices" amid Iranian threats to close the export outlet from the Persian Gulf.

The shutdown ordered Monday by South Sudanese President Salva Kiir sharply heightened the tension with north Sudan after acrimonious talks on how to divide oil revenue, vital to both states, collapsed.

Sudan has reserves of 6.6 billion barrels and is rated the third largest producer in sub-Saharan Africa after Angola and Nigeria. The two Sudans produce 460,000 barrels per day, with the greater part by the south.

But landlocked South Sudan can only export via pipelines running through the north to Sudan's only terminal at Port Sudan on the Red Sea.

Oil is the core of the dispute that threatens the existence of the infant state, which was established July 9, 2011, after a landslide vote for secession in a referendum.

The poll was conducted under a 2005 peace treaty that ended a civil war that began in 1955 and took the lives of more than 2 million people.

Khartoum has demanded fees of $32 per barrel for use of the pipelines and the terminal. South Sudan says that's extortionate and has offered $1 a barrel as part of a multimillion-dollar compensation package for seceding.

The south says it was left with no option but to shut down oilfields after Khartoum unilaterally sold southern oil worth $815 million.

The north said it seized the oil in lieu of transit fees it said the southern government hasn't paid since secession.

The halt in production leaves both north and south in a precarious economic situation.

The south has no other resources it can fall back on and needs oil revenue to pay for its drive to build an economic and social infrastructure in the impoverished region, where there are only about 50 miles of paved road and few schools.

The north is also under growing economic pressure. In the final decade before separation, "oil production fed a boom in consumer spending and services concentrated around Khartoum," the Financial Times reported.

"But the government was ill-prepared for the 75 percent drop in revenues from oil when the south voted for independence and took most of the country's reserves with it in July."

Since then, the north's currency has nosedived 60 percent on the black market, alongside a decline in foreign currency inflows.

"Annual inflation reached 21 percent in September 2011 but the price of some basic foodstuffs such as sorghum, a staple food, have more than doubled, ramping up social tension," the Financial Times observed.

"The government is definitely worried," said Ibrahim Ghandour, political secretary of the north's ruling National Congress Party.

"They've been quelling protests with violence, like before, and with large numbers of arrests."

Khartoum argues that by 2015 it will have lost $15 billion with the secession of the south. The International Monetary Fund puts the figure at $5 billion.

The south's lead negotiator, Pagan Allum, told the Financial Times the Muslim Arab regime in Khartoum had plundered the Christian and animist south for centuries.

He said Kiir's Sudan People's Liberation Movement government in the southern capital of Juba may demand Khartoum pay for oil revenue over which it claims the north has "cheated the south" since the 2005 peace pact.

The oil shutdown came a day after South Sudan and neighboring Kenya signed a memorandum of understanding to build a new pipeline to Lamu on the Indian Ocean.

Allum said another possibility is running a pipeline through Ethiopia to Djibouti in the Horn of Africa.

But both projects, if they take off, will take years to reach fruition.