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Is China Paying Too High A Price for Oil In Sudan?

November 6, 2008

Is China Paying Too High A Price for Oil In Sudan?(By Martin McCauley.) The news that five Chinese oil workers have been killed in Sudan’s South Kordofan province came as a shock. For all in the know. However, three Sudanese oil workers were also murdered and two Yemeni workers abducted nearby. The Khartoum government blames the killings of Chinese citizens on the Baqqara Arabs. They died despite the fact that China has troops in Sudan to protect its nationals working there.

Originally, nine Chinese oil workers, belonging to the Chinese National Petroleum Corporation, but under contract to the Greater Nile Petroleum Operating Company had been taken hostage. Three were killed in a shootout between the rebels and the Sudanese army. The Chinese called it a ‘botched rescue attempt’ but Khartoum maintained that the rebels had become nervous when a helicopter began circling overhead. Two more workers were found dead shortly afterwards. The Chinese Minister for Foreign Affairs had informed his Sudanese counterpart that it was one of the worst cases of the murder of foreigners in recent years. Beijing was ‘very shocked’ by it.

The fact that Arab tribesmen had arrived to negotiate the release of the hostages would seem to confirm that they were the guilty party. Their leader, also regarded as the head of the rebel Justice and Equality Movement, has made no secret of the fact that he is determined to drive out the Chinese oil workers. Nevertheless, he denied any responsibility for the outrage and rejected the accusation by the Khartoum government that the incident amounted to terrorism. He, in turn, accused the government of terrorising his followers. The Chinese denounced the kidnappings as ‘terrorism’ and demanded severe punishment for those responsible.

Khartoum reiterated its claims that the Justice and Equality Party was responsible, but on November 1 it changed tack. On that day the Sudanese Minister for Foreign Affairs stated that the abductors were former members of the government’s Popular Defence Forces (PDF). These irregulars had not been integrated into the Sudanese army after the peace agreement of 2005. The PDF was running low on funds and some of its men had been defecting to another rebel group, the Sudanese Peoples’ Liberation Army.

Arab tribesmen’s many grievances include the destruction of pasture land and the fact that the oil industry does not recruit local labour but brings it in from China and other parts of Asia. The difficulty for Khartoum is that the centre of the oil industry is in the disputed border between north and south Sudan. Arab tribesmen have been fighting the Sudanese army there for a long time.

The tribesmen are angered that the oil revenues are not being used to improve the infrastructure and living standards in the region but are siphoned off to pay for the development of Khartoum. Thus the oil producing region of South Kordofan remains very poor.

The ruling National Congress Party (NCP) has attempted to remove traditional leaders and replace them with officials who are loyal to Khartoum. The NCP is an Islamist party dominated by Arabs from north Sudan.

The Arab tribesmen also abducted four Indian oil workers and their Sudanese driver in May. They were later released, presumably after a ransom had been paid.
These attacks come at a time when oil prices are plummeting and this adversely affects the revenues of the Khartoum government. Its main source of income is from oil exported to China. No statistics are available about the cost of lifting the oil in Sudan. If the price drops below this figure the Chinese may decide to scale down their operations for the present.

More attacks on their workers could also lead to China deciding that the security environment in Sudan is too hostile. Another factor is that the Chinese economy is expected to slow this year and in 2009 and 2010 to about 7 per cent. The conventional wisdom is that 8 per cent growth is needed annually to ensure social peace. One of the reasons for this is that about 10 million rural dwellers move to the coastal cities annually in search of work. Millions of destitute peasants in urban areas would cause a social explosion. China’s oil consumption next year is expected to be the same as this year’s. It may even decline in 2010.

This scenario means that the loss of some oil from Sudan would not be a disaster for China. It would, however, be a disaster for Sudan. The government in Khartoum is faced with a stark choice: either direct some of the oil revenues to the border region or face a sharp drop in oil revenue. Khartoum is aware that no western oil company can replace the Chinese because of the security situation and international pressure.

The ball is now in Khartoum’s court.

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