Sudan fighting prompts fears oil supply could be affected

Concerns were rising April 17 over oil production and exports in Sudan and its bigger-producing southern neighbor as fighting related to a vicious power struggle between military leaders rolled into a third day.

Sudan, the smallest producer in the OPEC+ coalition, produces around 60,000 b/d, according to S&P Global Commodity Insights estimates, about 100,000 b/d less than neighboring South Sudan, sub-Saharan Africa's third-largest producer.

However, South Sudan relies on Sudan to export its crude, which travels through a pipeline to the Red Sea via Khartoum, where explosions and gunfire were heard April 17.

Although there were no immediate reports of operations being affected at Sudan's oil production, refining or export infrastructure, since fighting broke out April 15 in the capital, near the South Sudan border and in Port Sudan, oil market watchers have remained vigilant.

"Exports through the pipeline could be impacted," Alex Vines, head of the Africa program at Chatham House, told S&P Global Commodity Insights. "I think it's one of the reasons Juba offered to mediate."

Adhieu Majok, a South Sudanese analyst, said: "The sentiment around South Sudan is that if the conflict continues to escalate it will affect oil production and income."

Sudan and South Sudan's export crude grades are the Nile and Dar Blend, which are mostly sold to Asian refiners in China, India and Malaysia.

Platts, a division of S&P Global Commodity Insights, assessed Dar Blend FOB from the Marsha Bashayer oil terminal on the Red Sea at $84.38/b on April 14, a $3.5/b discount to Dated Brent.

Power struggle

Under the Transitional Financial Arrangement, signed after South Sudan achieved independence in 2011, Juba pays Khartoum fees and a non-commercial tariff to ship its crude to international markets.

South Sudan, which relies on oil revenue for 95% of its national budget, has in the past accused Sudan of diverting crude to its inland refineries without consent. In September, officials in South Sudan said they had bought land in the tiny coastal state of Djibouti to build a new export terminal. The world's youngest country is also part of a long-delayed regional cargo transportation network starting in Lamu on the Kenyan coast.

South Sudan's oil reserves are estimated at 3.5 billion barrels, but production has stagnated in recent years despite efforts to boost production from aging wells.

Malaysia's Petronas, which owns major upstream assets in South Sudan, and London-listed Savannah Energy, which agreed to buy the projects in December, could not be reached for comment.

The fighting in Sudan centers on a power struggle between Gen Abdel Fattah al Burhan, the head of the armed forces and the effective president, and his deputy, Gen Mohamed Hamdan Dagalo, who leads the feared Rapid Support Forces.

The generals, who took power in October 2021 after the toppling of former president Omar al Bashir, had been preparing to hand the country over to civilian rule.