In late January 2012, the government of South Sudan made the unprecedented decision to shut down oil production throughout the young country. The decision resulted from an impasse in negotiations between Juba and Khartoum over the financial terms and conditions by which the South would export its oil through Sudan. The situation was exacerbated by unilateral actions taken on the part of the government of Sudan to divert Southern oil passing through its territory. To Juba, Khartoum’s actions amounted to the illegal confiscation of $815 million worth of oil. The government of South Sudan determined that, from its perspective, it would rather see the nation’s wealth sit in the ground, safe from further theft at the hands of the regime in Khartoum, until a sustainable agreement with Sudan can be reached or an alternative mechanism for export is secured. Neither of these outcomes is likely to be realized in the near term, and as a result, South Sudanese oil production could remain on hold for a period of months, if not years.
Regardless of one’s opinions concerning the South’s motivations and decision to shut down oil production, one stark economic fact remains clear: the government of South Sudan, prior to January 2012, derived 98% of its budget from the sale of oil. Therefore, one might ask, what could the oil shutdown mean for South Sudan?
This fact sheet attempts to address this question by identifying austerity measures that the government in Juba has already imposed and considering other potential effects that the oil shutdown could have on South Sudan, both economically and politically, if it continues for an extended period of time.