FEATURE: Sudan crude flows stable after 100 days of civil war

East African oil flows remained steady as Sudan's brutal civil war lurched past the 100-day mark this week, with forces loyal to Sudan's two warring generals both profiting from the vital energy sector, analysts and trading sources told S&P Global Commodity Insights.

However, oil markets remain vigilant, with a protracted conflict raising the prospect that energy infrastructure could be targeted, potentially dragging oil-dependent South Sudan -- the region's biggest producer -- into the fray.

Fighting first broke out on April 15 in Khartoum and Port Sudan, home to the country's export terminals, due to a power struggle between rival generals Mohamed Hamdan Dagalo, head of the paramilitary Rapid Support Forces and army chief Abdel Fattah al-Burhan, leader of the Sudanese Armed Forces. Tensions had been high since the ouster of former leader Omar al-Bashir in 2019.

Sudan, the second-smallest producer in OPEC+, pumps roughly 50,000 b/d of crude, well below South Sudan's 160,000 b/d, but Juba sends all its crude through a pipeline via Khartoum to Port Sudan.

According to shipiping data from Kpler, crude exports from both Sudan and South Sudan were on course to reach 174,000 b/d in July, the highest since February 2021, despite worsening fighting uprooting 3 million people and killing thousands more.

Meanwhile, Sudan's sole operational refinery, the 100,000 b/d al-Jaili plant, 70 km from Khartoum, is producing at 51% capacity, according to Kpler, despite analysts confirming its seizure by the Rapid Support Forces in April.

Early fighting prompted speculation that oil infrastructure would come under fire as the RSF attempted to cut off a key source of revenue to Burhan's army. That has not come to pass because both sides are profiting from the sector, said Ben Hunter, Africa analyst at Verisk Maplecroft.

"Because both sides control different parts of the country's oil infrastructure, there is little need to attack it as either the RSF or army can prevent exports should they wish," Hunter said. "Both sides are hoping to benefit from much-needed oil revenue and destroying facilities would prevent this."

The RSF receives funds from the operation of the refinery, experts told S&P Global. Meanwhile, the SAFreceives funds from oil sales and transit fees paid by South Sudan -- which relies on oil for almost all government revenue -- for use of the Khartoum pipeline. "Neither the RSF nor army has been willing to risk a hostile neighbor on their southern border just yet," Hunter said.

Pricing impact

As a result, the sector impact has been limited to supplies of critical materials to South Sudan's oil fields, which have been re-routed via Djibouti and Mombasa -- as crude could be in the future -- and temporary price discounts.

Discounts of May-loading Nile and Dar crudes deepened to as low as Dated Brent minus $5/b and minus mid-$2s to $4/b, respectively, on a FOB basis, according to market participants at the time, because buyers of Sudanese and South Sudanese crudes faced difficulty finding shipowners willing to load cargoes. UK War Risks, an insurance company, has added Sudan to its list of high-risk areas, alongside the piracy-plagued Gulf of Guinea and Ukraine.

Eventually, however, buyers' fears were assuaged after there were no disruptions to crude oil liftings in the region, and prices have recovered on the back of healthy demand from end-users in China, with refiners coming out of maintenance, sources said.

Cash differentials of Sudanese/South Sudanese crudes Nile Blend and Dar Blend in the August-loading cycle have recovered to discounts above $1s/b and discounts in the high $1s/b to Platts Dated Brent crude assessments, FOB, sources said.

August-loading Dar Blend crude had sold lower than Nile Blend, possibly due to it having traded earlier in the month, although Dar is typically valued higher than Nile with its viability to be used for both refineries and LSFO blending, according to an Asia-based crude trader.

Ceasefires violated

After 100 days of fighting, neither the army nor the Rapid Support Forces has been able to claim victory, with the Sudanese Armed Force's air power matched by the RSF's ground dominance. Meanwhile ceasefires secured by regional and international mediators have been repeatedly violated.

Both sides have sent delegations for talks in Jeddah, Saudi Arabia, but experts say there is little appetite for a lasting peace. Attempts by regional organization IGAD to summon an East African peacekeeping force have been given short shrift by Sudan's army.

"The warring parties are still primarily focused on shifting the balance of the conflict in their favor and are using the existence of multiple mediation tracks to buy time and forum shop," said Ahmed Soliman, senior research fellow at Chatham House. "Neither a mutually hurting stalemate or tilt in the conflict favoring one side has been reached yet...For ceasefire talks to be successful, one of these outcomes will likely be required."

Threat remains

While neither side has targeted oil infrastructure, experts say that could still quickly change.

"If the war is expanding or more areas in Sudan are destabilized, it does increase the risk that oil flows could be impacted," analysts from S&P Global Commodity Insights wrote in their Global Political Risk Scorecard July 13.

"The RSF's threat to shut down the Khartoum refinery unless South Sudan stopped paying transit fees to the army demonstrates the risks to the oil sector should the conflict continue," said Hunter. "As both sides expend resources in the fighting, political wrangling over control of oil exports is likely to intensify."