U.S. Envoy Sees Rise in Oil Output Easing South Sudan Peace Deal

(Bloomberg) -- South Sudan’s plan to boost oil production should help it fund a forthcoming transitional government that seeks to end more than four years of civil war, the U.S. ambassador said.

President Salva Kiir and rebel leader Riek Machar, still in talks in neighboring Sudan, last week agreed on a cease-fire and signaled they’re ready for their second attempt at sharing power since the conflict that’s claimed tens of thousands of lives began in late 2013. Also in the pact is a commitment to work with Sudan on rehabilitating South Sudanese oil fields whose output is crucial to both nations’ economies.

It’s “potentially a very big asset to the country that might be acquired for paying for the mechanism of this new peace agreement that we hope to see coming out of these talks,” Ambassador Thomas Hushek said in an interview. But he warned that depended on the revenue going toward “South Sudan’s development and to fuel the peace mechanism, not to fuel continued fighting.”

South Sudan’s war, which began as a power struggle within the ruling party, has caused the continent’s largest refugee crisis and driven parts of the nation to the brink of famine. A decline in oil output to about 130,000 barrels a day, from 350,000 at independence in 2011, has combined with fluctuating oil prices to bring economic chaos to a country with no other main sources of revenue.

Pipeline Exports

Sudan’s oil minister said June 20 that rehabilitating some of South Sudan’s northern oilfields would take as long as three years and be conduced in three phases. Sudan exports the landlocked south’s oil via pipelines across its territory to a Red Sea port.

Kiir and Machar, his former deputy, agreed in 2015 to share power, but that agreement collapsed weeks into its enactment the following year, spurring a new wave of violence. Both government and rebel forces have been accused of atrocities.

The U.S. in March identified 15 oil-related entities in South Sudan that it accused of helping to fund violence, placing restrictions on their import of U.S. equipment. The State Department said South Sudan’s government used revenue from the entities to buy weapons and fund militias, allegations it dismissed.

To ensure the new income is used correctly, “you really need good oversight of the revenue streams that might come out of the oil industry,” Hushek, who was appointed ambassador in May, said this week in the capital, Juba.

“We took these steps to make sure that the U.S. companies do not in any way support these petroleum entities that were fueling the war rather than fueling progress in the country,” he said. “So we will continue to take strong steps on corruption or poor transparency if we don’t see that the money is being used in the right way.”

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