Sunday, July 10, 2011

China, South Sudan's independence and the scramble for oil.

Southern Sudan has gained independence a few days ago, becoming the world's newest country.

Although I am no expert on Sudan, I understand that the splitting in two of one of Africa's biggest nations is the result of an ethnic division between the North of the country, which is mostly Muslim and identifies with the Arab world, and the South which is mostly christian or animist and identifies with Black Africa. The country has always been ruled from the North, and some Southerners have been at war to gain independence for decades.

The aspect I would like to focus on are the obvious geopolitical interests circling around Sudan and its oil. Sudan has very large oil reserves (it comes 20th in the world in this respect), and about 80% of the country's oil is concentrated in the South. Although secession does seem to be the genuine will of the people who live in Southern Sudan, it would be naive to think that the attitude of the great powers towards the birth of the nation of South Sudan is not heavily influenced by their insatiable thirst for oil. My original assumption was that the split of Sudan into two nations is basically an important point scored in the Western countries' battle with China (and other emerging powers) for prime access to Africa's oil resources.

It is well known that the Sudanese regime of Omar al-Bashir is in pretty good terms with China, and very bad ones with the US and the West in general. Sudan used to host Osama Bin Laden, and the US army bombed a chemical factory in Sudan in 1998, claiming that it was linked to Al Qaeda. An International Criminal Court arrest warrant even hangs over Al-Bashir's head. The country is on the US's "state sponsors of terrorism"list, and the US has imposed sanctions on the country, forbidding its companies from trading with it. As a result, most of the country's oil fields are owned by China's National Petroleum Corporation, Malaysia's Petronas, and India's Oil and Natural Gas Corporation, with the Chinese having the biggest share.

Of course, China has always been criticized in the West for its proximity to the Sudanese regime, especially in connection with the massacres in Darfur. I cannot help feel that there is a certain hypocrisy in such criticism, especially when it comes from those who will not hesitate to go to war themselves over oil, as well as support all kinds of regimes as long as they will continue providing them with their flow of black gold. As relative newcomers in the scramble for Africa's natural resources, the Chinese (and to an extent the Indians, Malaysians and others) are forced not to have too many scruples and do business with whatever government will agree, and countries which the West treats as pariahs, such as Sudan, are clearly a very good option for them.

On the face of it, the independence of South Sudan doesn't seem to bode well for Chinese interests. It is not hard to imagine that the government of the new nation of South Sudan will be much friendlier towards the West (as well as lying outside of the Arab sphere), and it will hold the lion share of Sudan's oil resources. However, after a more detailed look at how South Sudan's oil will be refined and exported, the real beneficiaries of the new situation are not at all clear anymore. North Sudan still holds all the refineries, the only pipelines and the only seaport (the South is landlocked). During the period of autonomy which the South of Sudan has already enjoyed from 2005 until 2011, the North got 50% of the revenue for the South's oil, in exchange for the use of its refineries, pipelines and its port.

It is not clear what will happen from now on, but the North wants to continue receiving a 50% cut, while the South is reluctant to agree. Although South Sudan is not under US sanctions, if they continue exporting their oil through the North then the sanctions will still apply and the US will continue to be unable to extract or buy the country's oil. There is a plan to build a new pipeline running from South Sudan through Uganda to Kenya which would avoid relying on the North, but it is not clear whether this is viable. Meanwhile China's economic councilor in South Sudan, Zhang Jun, has already told the Financial times that China would be willing to give loans to the country to keep it going financially while the Chinese build the pipeline to Kenya themselves.

All in all, I am beginning to wonder whether South Sudan's independence is that bad for China after all. It's companies still seem to own most of South Sudan's oil fields, and their allies in North Sudan may still get a big cut in the export of the South's oil in any case. What seems pretty certain is that South Sudan is going to become another unstable and corrupt country whose economy is entirely based on exporting one particular natural resource, and the oil revenues will most likely only benefit the local elite and foreign companies, rather than the local people. Renewed conflict with the North over oil is not to be excluded either.

One thing is clear: as long as the world economy is so dependent on fossil fuels and oil in particular, it will be difficult for countries like Sudan to achieve lasting peace and a healthy form of development.