The International Energy Agency warned last week in its 2020 World Energy Outlook that oil demand growth will slow to its lowest levels since the 1930s. The Paris-based agency predicted that after an unprecedented drop of 8% this year due to the pandemic, it will take until 2023 for global oil consumption to return to pre-crisis levels if the virus is brought under control this year.
Not all oil-producing countries will be affected equally. Many already enjoyed bonanza levels of oil demand before Covid-19 hit. For countries that have alternative forms of energy production such as solar and nuclear power, this will be a blow, but not a fatal one. For countries that are wholly dependent on oil revenues, this could be disastrous.
South Sudan is the country we should all be watching. Africa’s newest state took about three-quarters of Sudan’s proven oil reserves when it declared independence in 2011. This amounted to approximately 350,000 barrels a day. Its 2011 budget derived 98% of government revenue from oil, making the country “the most dependent economy in the world on a single and volatile commodity”.
In the intervening years, South Sudan’s oil production dropped dramatically. Less than two years after independence, tensions broke out between the warring factions and tribes in the country, eventually descending into civil war by 2013 and again in 2016. This halved the country’s oil output. South Sudan also disputed the tariffs with its former foe for use of Sudan’s pipelines to export the crude oil via the Red Sea. At times, South Sudan halted production altogether. By the end of 2018, the total daily oil output in South Sudan fell to 170,000 barrels.
The steep decline in oil production had been predicted even before the country’s civil war. Its 2011-2013 Development Plan warned that “even if additional oil fields are discovered or new technologies allow greater recovery from existing fields, [the government of South Sudan] cannot be certain about future revenues and there is no guarantee that world prices will not fall low enough to make extraction financially unfeasible.”
Despite the warnings, South Sudan did little to diversify its economy. Other industries barely developed and most people worked in unproductive, unpaid agricultural and livestock work. According to the World Bank, GDP per capita dropped from $1,111 in 2014 to less than $200 in 2017. Food insecurity was acute. In 2018, oil revenues still accounted for approximately 90% of total government revenue and more than a third of GDP.
Things picked up in 2019 when a fragile peace agreement was reached between the President Salva Kiir and the leader of the main opposition faction, Riek Machar. Cross border relations improved between Sudan and South Sudan, and South Africa signed a six-year exploration deal.
South Sudan may have sub-Saharan Africa’s third-largest crude reserves, but only a third of the country has been explored, according to the US Energy Information Administration. Oil companies circled the area, as they did in the past, but this time they were wary of the exploitation and violence used by the South. The Swedish investigation of Lundin’s executives, who were present in one of the Blocks between 1997-2003 but never produced any oil, served as a reminder that commercial production can get caught up in a very bloody, historical conflict that has little to do with the companies themselves.
All this was before the Covid-19 pandemic. What happens now in South Sudan is anyone’s guess. The country is still beset with violence and corruption, following decades of inter-tribal, inter-factional conflict. Aided and abetted by a complicit international community that framed the longest African civil war as a fight between Christian and Muslim civilisations, the South Sudanese factions were forgiven for their atrocities under the cloak of liberation.
The warring years of the 1980s and 1990s, when the South was supposedly fighting the North for independence, were, in fact, a brutal showdown between shifting allegiances in the South and a fight for supremacy, secession and power. For decades, military leaders and soldiers embarked on mass polygamy to entrench alliances and create a new social order. The oil revenues allowed this complicated patronage system to continue.
After independence and without the North to fight, the tensions between the different sides reached boiling point and descended into civil war. But still, the international community continued to provide core services to the populace without holding the elites to account for the power they had accumulated. This is a conflict that has killed about 400,000 people and displaced millions – and could descend into violence once again.
The IEA report is a timely reminder of what happens when we allow failed states to continue, especially when they rely on one single source of revenue. For countries that have some semblance of stability and accountability, the drop in oil demand growth might be an incentive to build new industries and invest in alternative energy sources. But countries like South Sudan are unlikely to prosper or even survive in the current circumstances. As is always the case, it will be the ordinary South Sudanese who will suffer.
By Simon Wolfe, international lawyer and managing director of Marlow Strategy.