Southern Sudan prepares to rattle the oil industry

Southern Sudan plans to secede on July 9th, and aside from possible political tensions, investors and businesses worldwide should be on the lookout for probable changes in the country’s oil industry and possible investment opportunities.

Sudan is the third biggest oil-producing nation of Africa, and 75% of its oil is produced in the south.

Investors and businesses with a stake in the oil industry may want to keep tabs on the development of Southern Sudanese policy regarding the oil sector. The leader of Southern Sudan has already stated his intention to divide up undeveloped oil fields, specifically those owned by French conglomerate Total, and sell off the parcels.

This presents good opportunities for others seeking to cash in on Sudan’s vast oil reserves, but may also lead to reluctance on the part of foreign corporations to invest in the nation, if they suspect their contracts may not be honored by the new government.

Statements by investment minister Oyay Deng Ajak, who issued a public proclamation saying, “[Southern Sudan] will review the contracts that have been signed, look at them critically, make sure that we remain happy”, amplify the nervousness of foreign investors [CNN.com].

At the moment, the countries holding the biggest stake in Sudan’s oil are China and Malaysia. However, huge sums of additional infrastructure investment will be needed in order to keep the new country afloat and diversify the economy after independence.

For those looking to be a part of the new nation’s development, some issues to consider are the instability of the southern state on its own. A full 98% of Southern Sudan’s budget last year was dependent on oil revenues, and such a lack of diversification will lead to massive instability in the nation’s economy and politics, dependent on worldwide demand for oil and prices.

Though U.S. investors may be mostly unaffected at the moment, because of U.S. sanctions against Sudanese oil dating from 1997, the government of Southern Sudan has called for the lifting of such sanctions, as they were imposed against the northern government and should not apply to them.

Though so far the Treasury Department has proved reluctant to reverse these sanctions, if they are lifted in the future, U.S. investors in the energy industries should be on the lookout for new opportunities in Southern Sudan.

Additionally, this may become a non-issue if the oil is exported along a different route. Currently, the oil refineries and pipelines exporting Southern Sudan’s oil are located in the northern part of the country.

However, Southern Sudan is declaring plans to build pipelines through east Africa, most probably Kenya, and bypass Khartoum entirely. Such an action may make U.S. business involvement with Sudanese oil easier.

Though the exact direction of change and reform remains to be seen, the oil industry and those watching the market for energy should be prepared for possible major changes after the secession of Southern Sudan.

Image Source: Wikipedia