Author
Astrid R.N. Haas
Developing off the back of one natural resource is risky for any country. It makes them reliant on external conditions beyond their control, such as global demand and supply. Since June 2014, global oil prices have fallen by more than 70%. Consumers are happy. Oil producing nations are not.
One example of this is South Sudan. It is the world’s youngest nation, having gained independence from Sudan in 2011 after more than 20 years of war. Commercial oil was discovered in 1979 by US company Chevron in what was then one country, Sudan. The main oil reserves are located along the border between Sudan and what is today South Sudan, with an estimated 75% of the oil reserves found on the South Sudanese side. The refinery and most other infrastructure necessary to sell and export the oil are located in Sudan.
When South Sudan gained independence, the two countries negotiated a fixed fee for each barrel of oil produced. The total fee was set at about US$25 per barrel. At this time, the oil price was about $100 per barrel. This was sufficient for the country to make a healthy profit from oil production. Its oil revenues made up more than 95% of government revenue. But by agreeing on a fixed fee South Sudan carried the full risk of an eventual slump in oil prices. The country is still in an estimated $2 billion of arrears to Sudan for the transit fees since 2011.
