By Philippe de Pontet and Clare Allenson
Although today's African Union (AU)-U.N. deadline for reconciliation between Sudan and South Sudan has come and gone without a resolution, the Security Council is unlikely to follow through on its threatened targeted sanctions for now (China and Russia are unlikely to endorse them). While an oil deal in the next few weeks remains unlikely, the economic and patronage imperatives in both capitals finally point toward an interim oil deal before the end of the year or in early 2013 -- despite plenty of spoilers on both sides who see compromise as capitulation. Each side has made an initial offer on transit fees, and while more movement is needed, resumption of most of Sudan's 350,000 barrels per day (BPD) will likely occur by the end of the year or, at the latest, in early 2013.
Ever since South Sudan shut down its northern-bound oil production in January, the two nations have been engaged in a battle of economic attrition, punctuated with actual and proxy battles near their disputed border. South Sudan, which depends on oil for more than 95 percent of its revenue base, injected a ray of hope in recent weeks into the long-languishing talks, with an offer of over $8 billion in debt relief and compensation for Khartoum, and pipeline fees of about $8 per barrel of oil. The government of Omar al-Bashir in Khartoum wasted no time in rejecting the offer, insisting that border security is the top priority -- but its revised (albeit still low) offer of roughly $32 per barrel a few days later indicates that the two countries are slowly moving toward a deal. Sweeteners from China and the Gulf states will probably be necessary to get Khartoum to raise its offer further. Despite the initial rejection, the new terms should provide the basis for a reasonable oil deal that could get Sudanese crude flowing again. Though full production will take several months, the largely unexpected addition of more than 200,000 BPD of Sudanese crude would be a small, but not insignificant, supply bump for highly volatile oil markets.
The embattled Bashir administration cannot afford to appear weak, and declined a meeting with South Sudan President Salva Kiir ahead of the U.N. deadline this week. But it literally cannot afford the drastic austerity that looms on account of lost oil revenues, which explains Khartoum's acceptance to attend an AU summit with Kiir in the near future. The envisioned Sudanese cutbacks make Greek austerity look like a walk in the park -- not to mention the additional pain of high inflation, a sharp depreciation of the Sudanese pound, and an incipient anti-regime protest movement. The Kiir administration faces an equally negative outlook, with inflation well above 70 percent and a 56 percent-unfunded budget despite a nearly 40 percent cut in spending. Dwindling donor patience will serve to push Juba's hand toward a deal. Even more significant is Juba's belated realization that a southern-based pipeline, if it emerges at all, is years away and therefore not a panacea for its pressing needs.
A binding deal on oil revenue sharing will not be possible or sustainable if the Sudans remain in a shooting war on both sides of the border. Both of the military-dominated governments would plough a huge percentage of oil revenues into security, risking an even greater escalation, making both sides understandably wary of an oil deal without security guarantees-particularly Khartoum, which faces multiple insurgencies just a year after its painful loss of the south.
Talks have broken down several times over the location of a demilitarized zone, which would represent the first step to ending hostilities. During her visit to Juba this week, Secretary of State Hillary Clinton will pressure the Kiir administration to follow through on security guarantees in order to move negotiations forward. Juba's implicit bargain now appears to be to demobilize its affiliated militias in Southern Kordofan and elsewhere, in exchange for an independence referendum in Abyei, which would likely see the district join South Sudan. Khartoum will no doubt exact a higher price, through higher transit fees. Hammering out such a deal will be tough, but the reality of a mutually destructive stalemate, together with both Juba and Khartoum's revised oil offers, should offer scope for a deal-albeit a shaky one-sooner than most would expect.
Philippe de Pontet is the director of Eurasia Group's Africa practice. Clare Allenson is an associate in the firm's Africa practice.
ASHRAF SHAZLY/AFP/Getty Images
By Eurasia Group's Africa practice
Over the next couple of weeks, The Call will be detailing our political and economic expectations for regions around the world. First up: Africa.
The big story in Africa next year will be elections. In total, Africa will hold 17 presidential contests; a range of local, regional, and parliamentary votes; and a referendum on independence in southern Sudan. Not all political actors will seek legitimacy via the ballot box or play by the rules, but this high number of elections highlights the continent's momentum toward democratization.
Elections in Africa often generate uncertainty -- by intensifying power struggles among elite factions, between reformist and hard-line elements, and between incumbents and the opposition. Nigeria's election in April 2011 is likely to be the continent's most hard-fought. A bid by current President Goodluck Jonathan, a southerner, to secure the ruling party's nomination for another term threatens to upset the delicate power balance between the country's north and south and to derail crucial oil and power-sector legislation.
Zimbabwe is at a crossroads. Political reforms -- including a constitutional referendum -- are stalled. The landmark power-sharing agreement between President Robert Mugabe's party, ZANU-PF, and the opposition Movement for Democratic Change (MDC) expires in February 2011, but the timing of elections is still uncertain. ZANU-PF will go all out to avoid another power-sharing pact, but a disputed election is possible. If Mugabe can hold elections in early 2011, ZANU-PF has a good chance of retaking sole power, which would kill Zimbabwe's tentative rapprochement with Western nations and seriously dampen its prospects for economic recovery. A postponement (perhaps until 2012) would ensure a more credible process and give the MDC a decent chance. In the meantime, the election battle will heighten economic policy risks.
In the Democratic Republic of the Congo (DRC), the administration of President Joseph Kabila will likely rig the voting in late 2011 to ensure his reelection. But one challenger, Vital Kamerhe, could pose a limited threat if the government allows him to run. On the economic side, management of resources is expected to improve incrementally, especially at the central bank, the finance ministry, and donor coordination bodies.
Although Uganda's President Yoweri Museveni is likely to win reelection outright in February (perhaps thanks to his newly displayed musical talents), challenger Kizza Besigye may force a runoff. Uganda's imminent oil wealth has ratcheted up the political stakes and could darken prospects for a peaceful election. But despite complaints from the opposition about election rigging, the international community will likely accept the results, and the status quo will prevail. This will reassure investors in East Africa's next oil-producing state. But the combination of a relatively competitive election, the potential for violence, and looming oil windfalls could each make Uganda harder to govern.
A different type of vote, southern Sudan's referendum on independence, is likely to generate the most media attention in early 2011. Despite logistical challenges, the referendum is almost certain to take place -- though with minor delays -- and a vote in favor of independence is a foregone conclusion. But the separation may be difficult to effect. During the six-month transition period before statehood and a final agreement on oil revenue sharing, borders and citizenship rights must be negotiated. The contested region of Abyei, which has its own referendum, could become an early flash point.
This post was written by analysts in Eurasia Group's Africa practice.
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By Philippe de Pontet and Willis Sparks
Why would President Omar al-Bashir allow the southern third of Sudan to secede, taking 80 percent of the country's oil with it? Maybe he won't. It's far from a done deal. But for the moment, it appears his government might be willing to do just that.
South Sudan is hoping to hold a referendum on January 9 that will almost certainly lead to its independence from the government based in Khartoum. After years of negotiations, North and South remain far apart on issues that must be resolved if a credible vote is to take place, and if an independent South Sudan is to be truly viable. But incentives and pressure from outsiders may help bring this off.
Last week, the State Department formally offered the North some attractive conditions-based carrots. If Khartoum accepts the results of the referendum, Washington will lift restrictions on non-oil trade and investment. And upon fulfillment of the terms of the Comprehensive Peace Agreement that ended the civil war in January 2005 and "resolution" of the Darfur conflict, the US will give al-Bashir's government much of what it says it wants: sanctions removal, normalization of relations, and support for a multilateral plan to reduce Khartoum's astronomical $38 billion debt.
In return, the South will have to share some of its oil wealth with the North, moving gradually over the course of several years from the current 50/50 split to a smaller share for the North that's large enough for Khartoum to accept. The two sides will also have to demarcate the border and resolve the status of the oil-rich province of Abyei -- not easy tasks. On Friday, a U.N. summit on the issue will bring together representatives of North and South with U.N. Secretary-General Ban Ki-Moon, President Barack Obama, and Secretary of State Hillary Clinton.
There are solid grounds for optimism beyond the persuasive powers of the diplomats involved. First, China, one of the few international players with real influence in Khartoum, wants a North-South agreement that averts any risk of a return to civil war, since most of the 480,000 barrels of crude oil that Sudan exports each day are bound for China. That's more than 5 percent of China's imported oil. A North-South conflict in Sudan would cost Khartoum and Beijing dearly.
Second, Washington will lean heavily on the South to compromise on the sharing of oil revenue and the border demarcation process. The South depends on support from the United States and the United Nations for the referendum and its independence. With billions of U.S. aid dollars spent, and billions more to come, it's high time that the United States put real pressure on the South to make necessary compromises, starting with oil revenue-sharing.
Finally, the North is not entirely vulnerable to southern control of oil. The South may hold 80 percent of the reserves, but the existing pipelines run north. The two sides must get along if either is to profit from the oil.
Last week, Hillary Clinton told a Council on Foreign Relations audience that Sudan is "a ticking time bomb of enormous consequence," reminding everyone involved how much work remains to be done-and how easily negotiations could fly off the rails. The United Nations will offer to play a leading role (with the African Union) in preparing the referendum. That's critical since preparation time for such an ambitious vote is running short, in a region almost entirely devoid of infrastructure. Khartoum's response to this proposal will give some indication of its willingness to make compromises of its own, as it has grudgingly done on several occasions since the 2005 peace agreement.
The Obama administration has adopted an ambitious (and risky) strategy. Much of what it has promised Khartoum will depend on "resolution" of the conflict in Darfur, an issue not directly related to the North-South conflict. Khartoum will want clarity on what the word resolution actually means, balking at allowing the South to secede without knowing just how high a bar it must clear to claim the incentives Washington has promised. The United States, European Union, United Nations, and Khartoum's friends in China and Egypt will have to remain actively involved if talks are to remain on track.
In the end, despite hot heads and tough talk on both sides, North and South will probably move toward compromise on oil profits, the border, and Abyei during the six-month transition period between the referendum and the official birth of a new nation (whose name has yet to be determined). A return to civil war would serve neither government. An end to conflict and a stable environment for oil production would profit the two governments' most powerful foreign friends.
If things go wrong, either side could get aggressive. A breakdown in talks before the referendum could push the South to simply declare independence unilaterally -- not an auspicious start to nationhood in one of the world's toughest regions. Alternatively, the North could decide to seize control of the South's largest oil fields. It could also destabilize border regions -- though Khartoum knows well that any attempt to stoke a broader conflict across the South would invite a military response that could trigger a return to war that virtually no one wants.
But for the moment, there are solid grounds for optimism that one Sudan can peacefully become two. And that would be an accomplishment worth celebrating.
Philippe de Pontet is Director of Eurasia Group's Africa practice. Willis Sparks is an analyst in the firm's Global Macro practice.
The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.