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South Sudan: Driving energy insecurity

Patrick L Young is expert in global financial markets working in multiple disciplines, ranging from trading independently to running exchanges.

Published time: December 25, 2013 14:41
A mother displaced by recent fighting in South Sudan rests on top of her belongings inside a makeshift shelter at the United Nations Mission in Sudan (UNAMIS) facility in Jabel, on the outskirts of capital Juba December 23, 2013.(Reuters / James Akena)

The world’s youngest nation state is on the verge of civil war. Few may have heard of the landlocked nation but its oil industry means any conflict impacts the world economy.

Barely two years after Sudan was partitioned to ease ethnic tensions on July 9th, 2011, now too the breakaway South Sudan is on the cusp of being ripped asunder by clashes between the Dinka and Nuar ethnic groups. Largely obscured by Christmas festivities elsewhere, the land-locked nation is not just a scene of massacres and an airlift of foreigners by respective governments; it generates global economic concern too.

Just as South Sudan is not much discussed beyond East Africa, so too the northern state of Unity is almost unheard of, yet it is the home to more than 95% of South Sudan’s economy, some 250,000 barrels of oil per day. The full travails of Sudan, which has enjoyed barely 10 years without conflict since it won independence from Egypt in 1956 are, rightly, much discussed elsewhere. However, the impact on the oil industry is now akin to an old English maxim about resources. “For want of a nail the shoe was lost…” begins a traditional rhyme where a steady stream of small failures, easily visible with hindsight that results in the loss of a battle as the cavaliers, bereft of horses with shoes, end up defeated on a grand scale.

Oil prices have reacted unfavorably to a series of worrisome drips in supply. In the aftermath of upheaval, Libyan oil production remains patchy. Meanwhile, Syria is rather wrapped up in its own civil war, and now too South Sudan is having a fundamental internal crisis which may lead the infant state into a full-blown conflict. Out of roughly 85,000,000 barrels produced daily world-wide, the total immediately at risk is sub 2% of current supply. However consider a few other ongoing production concerns - e.g. broader Middle Eastern stability issues - and the picture becomes cloudier.

South Sudanese sit on a truck with their belongings as it heads out of Juba on December 21, 2013 where tension remains high fueling an exodus of both local and foreign residents from the south Sudanese capital.(AFP Photo / Tony Karumba)

The Unity fields are a microcosm of global oil, with America’s Chevron and the Chinese National Petroleum Company heavily invested in South Sudan. Governments ignore at their peril security of energy supply. North America has liberally embraced shale technology and hence rebalanced its hydrocarbon needs - although ironically it too has niggling problems as a longstanding lack of investment has created bottlenecks in US infrastructure for refining and supply. These problems are being addressed, albeit slower than shale is being commercialized, leading to further price volatility.

Meanwhile, the European Parliament, under green NGO influence, is increasingly trying to turn its back on shale despite efforts by nations such as Poland and the UK to forge ahead. Even then man cannot heat by shale alone and the core energy security issue which arises around various hotbeds of potential conflict, often infused with a fundamentalist Islamic undercurrent (Middle East, Sudan etc.) suggests oil prices could remain elevated for some time to come.

That’s bad news for the world economy as higher energy prices always impact consumption. With a Chinese credit crunch looming in the background, there is a severe danger the world could tip back towards recession, all because the nail, shoe and horse became lost, beginning in Libya, Syria and Sudan.

Which leads us back to just where energy can be obtained with less angst… Given the stability of the Russian Federation, one wonders just how long the EU can haughtily demand enforcement of its regulations on pipelines like South Stream when Russia’s gas will flow under the Black Sea to Western Europe via Serbia to provide a steady supply of energy avoiding not merely the Middle East but even potentially volatile nations like South Sudan or Ukraine?

The terrible suffering of the people of South Sudan is a microcosm of the world’s ongoing energy security dilemma.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.

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