The Economic Impact of COVID -19 and Global oil prices on South Sudan
7 min read
By John Deng Duot, Seattle, USA
Tuesday, July 07, 2020 (PW) — South Sudan has occurred to be part of the OPEC Declaration of Cooperation for years and a consistent supporter of the Organization of the Petroleum Exporting Countries (OPEC) s measures to prevent volatility and to maintain market stability, which now includes COVID-19 pandemic. According to the World Bank, 98% of South Sudan’s economy comes from oil production and revenue. South Sudan is one of the hardest-hit countries by the current crisis of COVID-19 pandemic and the global drop in the oil market. It is not a secret that South Sudan relies on oil to fuel most of its economies and state coffers, but the revenue of such oil is dependent upon its export pipelines via Port Sudan. Both Sudan and South Sudan are connected economically. Sudan’s economy benefits from South Sudan in two ways: through her share of oil and through the transit fees which are compensated by South Sudan. On the other hand, South Sudan’s economy benefits from Sudan’s oil export infrastructure. This implies that one country cannot run without the other. As a consequence, oil prices’ instability disturbs a tricky balance between these two countries. With the economic impacts of COVID -19 and the global drop in oil prices, things might persist to be very difficult between these nations.
According to the recently appointed Minister of Petroleum in South Sudan, Hon. Put Kang, “South Sudan believes that market volatility is negative for every player in the market and hurts our ability to attract new foreign investment, diversify our economy and promote peace.” He continued to add that, “South Sudan is focused on boosting exploration and opening up new oil & gas fields, and the current scenario hampers our growth targets significantly.” This suggests that the most vulnerable oil-exporting South Sudan with her political instability will suffer the most during this crisis of COVID -19 pandemic and the global decline in oil prices. Despite the small rebound in oil prices in the past weeks, the low oil price is forecast to persist into 2021. This problem will exacerbate the already severe economy of South Sudan, which has been impacted negatively by the COVID-19 pandemic.
With the current oil prices fallen drastically below $40 a barrel, the Agreement on Oil and Related Economic Matters (AOREM) between Sudan and South Sudan, which was popularly known as Cooperation Agreement, is most likely to be discontinued. In addition, the Transitional Financial Arrangements (TFA) fees of $3.02bn which is due to Sudan as per the agreement, is not being fully paid by South Sudan as of now. As a result, the two sisterly countries, despite their mutual interest and the pursuit of sustainable development, might need to reaffirm their commitment in order for them to promote future stability and economic viability, which together can be achieved by extending their Cooperation Agreement for another three years as this duration is needed to complete the payment of the remaining balance of TFA.
With the recent crisis of COVID -19 and the global oil prices falling, the obligation and compensation of the TFA need to be readjusted in order to adapt to the changing economic realities and to ensure the continuous flow of crude oil to Port Sudan and into the international markets. Apart from her political instability and insecurity, South Sudan continues to suffer from the already existing economic failures as a result of failed cooperation between the countries. The economic failure of South Sudan is reflected in the actual sale prices of Nile Blend or the Dar Blend Crude Oil from Port Sudan and these prices range from $20 to $30 per barrel. Only $6 per barrel comes to the Government of South Sudan when the actual sale price of the same oil is between $30 and $40 per reel with fee increases to $9 per barrel. Apart from the TFA, additional fees are also paid by the Republic of South Sudan to the Republic of Sudan.
Therefore, with the aforementioned mischief, coupled with the consequences of the COVID-19 pandemic, the potential impact of the global drop in oil prices on South Sudan will be extreme on the health of South Sudanese. This pandemic is more likely to exacerbate the already failing economy and will further the social and political impacts on the whole country as large. Furthermore, the economic impact of the COVID-19 is more likely to induce the lockdown in South Sudan, which consequently will bring the most significant threat to the entire continent of Africa, not only South Sudan. Daniel Yergin, a Pulitzer-winning oil historian, mentioned that: “The May crude oil contract is going out, not with a whimper, but a primal scream.” And this similar remark was made by Brett Fleishman, climate change campaign group at 350.org, who argued that the collapse of oil prices is “another powerful example of how fossil fuels are too volatile to be the basis of a resilient economy”. This suggests that the whole economies of South Sudan will be worsened because of other countries relying on South Sudan for petroleum exports to China. South Sudan is more likely to lose everywhere since these countries will no longer trade and the consequences might be detrimental to everyone living in South Sudan.
Nevertheless, South Sudan’s oil reserves will possibly run dry within the next 10 years if South Sudan continues to produce her oil at the present rate of production, which is extremely high with less benefit to the country anyway. With the COVID-19 pandemic, South Sudan is more likely to contribute to a historical decline in global oil expenditures. According to the Conflict Research Program for South Sudanese researchers in Juba, the economic impacts of COVID-19 are already being experienced in Ler, Malakal, Nimule, and Yambio according to observations of COVID-19’s impacts. Besides, the unfolding impact of COVID-19 is already felt in other localities within South Sudan.
Furthermore, rumor has it that many South Sudanese are not obeying the guidelines for COVID-19. The prevalence and dangers of these rumors appear to be among the majority of the population who live in areas with very limited access to media, healthcare, food, and clean water. This means that they might be the most vulnerable people to the pandemic. According to Alex de Waal, these rumors might play a big part in the potential violence and kleptocratic governance practices. Succeeding researcher and anthropologist James C.Scott contend with such a notion. He elaborated that gossips are powerful tools for subaltern communities to critique power, and therefore, these rumors might also serve as public and hidden transcripts of resistance.
The extreme lack of public reaction to the ongoing pandemic is not unique to South Sudan alone. David Mwambari and Awino Okech reflected on their writing on ‘the people in other African countries,’’ have similarly argued that rumors deflect blame from the ruling coalition and attribute the disease to an economic fight between China and the United States. With that being said, COVID -19 and the global drop in oil prices will increase the already existing political game of blame. Dr Matthew Benson, a research manager on the Conflict Research Program and a research manager for the CRP – South Sudan Team, pointed out that the skirmish between these superpower (coronavirus and oil prices) elephants’ narrative tramples over other countries in the course of their dispute. Interestingly, this line of thinking echoes the popular narrative-Of what is going in Jonglei state. Moreover, the most profound observations highlighted is how South Sudan’s political marketplace might prevail in adapting to or even altering to the country’s pandemic and politics as argued by Alex De Waal.
According to Federal Reserve Chair; Jerome Powell, countries are scrambling because the global oil prices reached their biggest daily decline since April 27th and are continuing. Furthermore, this impact is due to oversupply and lack of demand. EIA reported that U.S. oil inventories rose by 5.7 million barrels, defying a prediction of a 1.45 million per barrel build, which added more pressure to oil prices. The U.S. Federal Reserve predicted that unemployment rates will reach 9.3% by the end of the year, adding that it could take years to return to pre-pandemic employment levels.
In summary, COVID-19 has resulted in the collapse of the global oil market. The global oil market breakdown has severely impacted South Sudan more than any other country. Even though the economic impact of COVID-19 has been felt heavily in South Sudan, it has also affected the whole world. COVID-19 has disrupted global value chains, has reduced demand for the region’s goods and services, and has notably affected South Sudan since that oil is her lifeline. Also, the stretch of this virus and the level of aggregate demand would hurt South Sudan’s investment and exports even more. The crumbling of the global oil prices will further depress the demanding economy of South Sudan where petroleum is the most important commodity for the nation. From the International standpoint, COVID-19 does not only affect South Sudan economically, but it has also led to the breakdown of negotiations between the Organization of the Petroleum Exporting Countries (OPEC) and its allies including South Sudan. Therefore, South Sudan will continue to face the consequences of coronavirus as far as this virus is concern.
About Post Author
