In January, South Sudan’s government brought oil production to a dramatic standstill, accusing its neighbour, Sudan, of charging excessive export fees and seizing oil shipments. A few days later, the head of the major Chinese-led oil consortium was expelled from the country for “non cooperation”. Oil companies, caught by surprise, were forced to close wells so quickly that congealing crude oil risked damaging the pipelines, a Chinese oil executive told Reuters.
An agreement signed by Sudan and South Sudan at the end of September, backed by Beijing, was due to see production resume last week, pulling the two countries back from the brink of war.
China’s role in resolving the dispute has prompted speculation that it is ready to take a more active role in conflict resolution in the war-torn region. But is this really the case? China’s authorities, in fact, appear reluctant, while larger territory disputes between Sudan and South Sudan, combined with internal ethnic conflict, still threaten to take the region beyond the help of intervention.
South Sudan – which depends on oil revenues for 98% of its annual budget – broke away from Sudan after an independence vote last July, the culmination of a peace deal forged in 2005. It followed decades of war in which more than 2 million people died. Before the country divided in two, Sudan produced around 500,000 barrels of crude oil per day. The split left 75% of the oil fields in South Sudan and the north in control of a Chinese-built pipeline and port for export. Lack of agreement over how to divide the country’s vast oil wealth has become an inevitable flashpoint.
To keep the oil flowing, China, as South Sudan’s biggest oil investor and consumer (accounting for 82% of its oil exports), has been drawn uncomfortably into the high-stakes conflict between north and south. China’s envoy for African affairs, Liu Guijin, was dispatched to break this year’s deadlock, warning that if the two sides fail to resolve the problem, the "whole region would be affected; the repercussions would be very serious".
The state-owned China National Petroleum Company (CNPC) led the development of Sudan’s oil industry during the 1990s in what was then China’s first major overseas investment, when raging civil war in Darfur kept most western companies away.
Chinese involvement in South Sudan is newer, but nonetheless crucial to the continuity of Beijing’s oil investments, which are now situated primarily in the south. Other Chinese companies and private entrepreneurs have flocked to Juba, South Sudan’s capital, looking for opportunities in infrastructure and new markets to push their products, along with Indian, Malaysian and other international counterparts.
China also has political reasons for intervening, says Luke Patey, expert on oil investment in the Sudans at the Danish Institute of Development Studies. The government wants to be seen as a responsible player by the international community for “doing their share to build peace alongside other international actors, particularly the US,” he says.
This appears to sit uncomfortably with the cornerstone of China’s foreign policy – non-interference in other countries’ affairs. Deborah Brautigam, expert in China-Africa relations and author of The Dragon’s Gift: The Real Story of China in Africa, said in a recent interview with Voice of America: “Sudan is fascinating because it’s a good example of how China is getting pushed out of its comfort zone in its non-interference policy. You can see that in trying to broker this recent agreement. They’ve had their first special envoy – shuttle diplomacy. The Chinese never did that before.”
Mounting risks, falling returns
The recent oil deal may have soothed international concerns, but the real challenges facing China are framed outside the agreement. “The elephant in the room,” explains Daniel Large, a UK based scholar on China-Sudan relations, are the other conflicts in the border region. “The international community have hoped that China could offer ‘a quick fix’ when really the conflict is down to the two parties involved.”
Final status of the contested oil-rich Abyei state remains unresolved, while on the northern side of the border, rebellions in South Kordofan and Blue Nile states are worsening. In South Sudan, independence has inflamed internal conflicts, with militia contesting the legitimacy of central government, and between ethnic groups, fighting over scare resources and access to political power.
Heightened conflict has affected oil production and put workers at huge risk. In January, 29 Chinese construction workers were kidnapped in South Kordofan. In an earlier incident in 2008, Chinese oil workers were kidnapped and killed in the same region, sending shock waves back home.
At the same time, oil in South Sudan is no longer as important as it once was to China’s global energy strategy; other regions, such as Iraq and Venezuela, now offer more lucrative opportunities for CNPC. “Oil production in South Sudan was stagnating before the shutdown took place”, says Patey. “What the industry needs now is new discoveries…and also a lot of investment in advanced recovery techniques, water and gas pumping, and horizontal drilling.” But savvy investors are unlikely to step forward in the current climate.
Chinese diplomats also seem to be taking a wait and see approach. The new government in South Sudan, which desperately needs infrastructure, has recognised the necessity of Chinese investment. But an US$8 billion infrastructure package reportedly agreed during South Sudan president Salva Kirr’s state visit to Beijing in April notably went unconfirmed by the Chinese government.
Set against these concerns, however, is the symbolic importance China attaches to the region: Sudan is one of the Chinese Communist Party’s longest standing allies in Africa and the first site of China’s “go out” policy. Every Sudan-watcher chinadialogue spoke to stressed that this status is likely to ensure China takes a long-term perspective and holds out for more peaceful times.
Environmental and human impacts of oil investment
Even if China gets what it wants – oil pouring out of the country – the environmental and human impacts of oil activities in the region still raise huge concerns. The end of civil war may have stopped the most egregious human rights abuses, the massacres and displacements, associated with oil activities. But significant problems remain, according to Leben Nelson Moro, from the University of Juba. Continued property destruction, land expropriated without compensation and massive environmental damage is serving to fuel local resentment towards oil companies, also seen complicit in the abuses committed during the war.
The extent to which companies act responsibly will, say observers, depend on the strength of local laws. The vast savannah ecosystems and swamplands of South Sudan – home to elephants, giraffe, water buffalo and which hosts the migration of Kob antelopes – are particularly vulnerable in the face of renewed oil activities. “Chinese companies will follow suit on the government’s lead,” says Dana Wilkins, campaigner at Global Witness, which is preparing to release a report analysing South Sudan’s oil laws.
“Just look at CNPC at home,” says Patey. “They’ve been involved in major environmental disasters in the past 10 years: oil spills into Bohai Bay, gas spills in rivers, a huge gas explosion that killed people in 2005. So how these companies operate at home does not bode well for how they will operate in Sudan and South Sudan if there is no strong regulation from the government there.”