High stakes for South Sudan oil crisis talks

The stability and viability of the world's newest nation South Sudan is at risk unless a deal is struck to end a furious row over oil with former foes in north Sudan, analysts warn.

The South last month launched a protest shutdown of oil production -- the fledgling nation's critical revenue source -- after accusing Khartoum of "theft," with both presidents warning of a risk of war without an agreement.

The South's oil -- which accounts for 98 percent of Juba's revenue -- is key to paying its bloated ex-rebel army, and which continues to absorb militia forces as part of peace deals to stem multiple rebellions in the new nation.

Alex de Waal, a long-term Sudan analyst and an advisor to dragging African Union-mediated talks slated to restart Friday in the Ethiopian capital Addis Ababa, has called the South's oil shut down an "economic doomsday machine."

Some estimates put South Sudan's security forces as high as 200,000.

"The real survival issue is about control of the SPLA (army)... over 40 percent of the national budget goes into the army," said Egbert Wesselink, of the European Coalition on Oil in Sudan, a rights group working for peace.

South Sudan -- which declared independence from Sudan in July -- is already reeling from multiple crises, including an explosion of ethnic violence as well as rebel forces Juba claims are armed by Khartoum to destablise it.

"Less money will make Juba less strong to control revolt, whether funded by Khartoum or not," Wesselink added.

The crisis between the two nations has become a major threat to regional peace and security, United Nations chief Ban Ki-moon warned last month.

At independence, South Sudan took with it three-quarters of the oil -- making up some five percent of China's imports -- but all pipeline and export facilities are controlled by Sudan.

Khartoum has said that Juba had not paid it for using its pipelines and refinery since South Sudan seceded seven months ago, and admits to have confiscated 1.7 million barrels of South Sudan crude.

Tensions have also been raised by their still undemarcated border, parts of which cut through oil fields, as well as the future of Abyei, a Lebanon-sized border region claimed by both sides but occupied by northern troops.

Nevertheless, Juba's fledgling government is upbeat about its future. Pagan Amum, South Sudan's lead negotiator in the stalled talks, said he rejected criticism that Juba had "committed suicide" by ending production.

"We will surprise them... history will be our witness," Amum said.

Juba last month signed an agreement with Kenya to build an oil pipeline to a Kenyan port -- potentially freeing it from reliance on Sudan, if Juba survives at least three years without income as the estimated $3 billion line is built.

But Luke Patey, from the Danish Institute for International Studies, warned of the "financial insanity" of investing in a new multi-billion dollar pipeline.

"Economically, the best scenario for South Sudan’s oil is undoubtedly to stop pipe-dreaming, work out an agreement with Sudan, and continue to send its oil north," Patey wrote in a paper last week.

However, the loss of revenues may have limited immediate impact for many in the oil-rich but grossly impoverished South, where government services are few -- if provided at all. Many accuse the fledgling government of rampant corruption.

"South Sudan's revenue is entirely oil based, and as for the impact, I don't think the little people are benefiting really, a lot of money goes straight into government," said Alfred Lokuji, development professor at Juba University.

"I fear that they will take loans against the oil... Although it would solve the problems in the short-term, paying it back would then be the nightmare South Sudan should never enter," Lokuji added.

South Sudan President Salva Kiir warned last week of the need for "austerity measures to ensure the continued viability" of South Sudan, urging people to accept a "temporary sacrifice for the overall good" of the country.

But UN humanitarian chief Valerie Amos has warned that the situation is "extremely precarious" and that a failure to resolve the oil deadlock would worsen existing crises in the South.

"If oil production is shut down, many people will feel the effects," Amos said last week, after visiting war-wracked regions affected by an upsurge in bloody ethnic violence.

"Humanitarian needs will inevitably increase and the combined efforts of the government, the aid community and the donors will not be sufficient," Amos said, adding the UN neeed $750 million for humanitarian aid this year.