Sudan Confiscates Southern Oil, What Will China Do?

China, dependent on Sudanese oil, might be caught in the crossfire of new tension.

Sudan’s government announced this weekend that it had confiscated petroleum exports from newly independent South Sudan as compensation for unpaid transit fees but it promised that it would not shut down a pipeline carrying the south’s oil.

The move is likely to exacerbate tension between the two Sudans and could force China, which is major Sudanese oil buyer, to adjust its policy of noninterference if it isn’t to lose access to the region’s oil reserves.

South Sudan declared independence last year after decades of conflict with the north. Despite a 2005 peace deal, many disputes remain unresolved. Among them, possession of oil reserves which are situated close to the border.

Landlocked South Sudan has two-thirds of the former unified Sudan’s oil output but needs access to northern export infrastructure to sell overseas. South Sudan pumps around 350,000 barrels per day, according to government data. The north needs the entirety of its oil production, some 115,000 barrels per day, to meet domestic demand. The two parties haven’t agreed on transit fees yet but resumed talks sponsored by the African Union on Tuesday.

In the meantime, Khartoum has confiscated southern oil as a form of payment for use of its pipeline and port facilities on the Red Sea.

Before the south seceded last year, Sudan sold more than 60 percent of its oil to China. 90 percent of it came from the south so the Chinese have to maintain stable relations with both governments if they are to continue buying Sudanese oil. The likelihood of renewed conflict over oil exports puts Chinese energy security at risk and could increase its dependence on another country that Western oil majors rather avoid — Iran.

Some 15 percent of Iranian oil exports is destined for China but the country’s petroleum industry is under pressure from international sanctions. European countries, which combined account for a similar share of Iranian exports, are expected to declare an embargo this month while Japan announced last week that it would support a boycott.

So China’s foreign policy of noninterference is challenged in two instances. Where it has thus far refused to meddle in the internal affairs of nations it does business with, especially in Africa, sudden disruptions in Sudan’s oil supply may tempt it to change that position.

With regard to Iran, China is under American pressure to reduce its oil buys. It may not have much sympathy for the Iranian regime but has to buy wherever it can. China imports more than a third of its oil and its oil consumption grows by 7.5 percent per year. It is estimated that China’s oil reserves amount to some eighteen billion barrels which makes them the fifteenth largest reserves in the world, behind countries like Kazakhstan, Libya, Mexico and Nigeria.

With Western companies dominating the market in most of Africa and Arab oil exploited exclusively by government monopolies, China has little choice but to turn to unstable countries like Sudan if is to continue to fuel its economic growth.