JUBA // Sudan's president is warning of war after efforts failed to reach an oil-sharing agreement between Khartoum and South Sudan.
President Omar Al Bashir told Blue Nile TV on Friday that war "is a possibility" because of escalating tensions with Juba over the negotiations.
South Sudan broke away from the north last July, taking about three-quarters of what had been Sudan's 500,000-barrel-a-day oil industry with it. It shut down all oil production late last month after it accused Sudan of stealing hundreds of millions of dollars worth of oil.
"If there will be war after the loss of oil it will be a war of attrition. But it will be a war of attrition hitting them before us," Mr Al Bashir said, apparently referring to the effects the loss of oil revenue would have on both countries.
As South Sudan depends on oil sales for 98 per cent of its revenue, Valerie Amos, the UN's humanitarian chief said a prolonged oil shutdown could force government services to dry up.
"Humanitarian needs will inevitably increase and the combined efforts of donors will not be sufficient," Ms Amos told reporters during a visit to Juba on Thursday. "The scope of this crisis cannot be ignored."
The sharing of oil revenue has been a key issue in negotiations since the south declared independence. The latest round of talks in the Ethiopian capital, Addis Ababa, broke down when the south refused to accept a proposal by the African Union High Implementation Panel (AUHIP) that is acting as a mediator.
In a speech Thursday in Juba, South Sudan's president, Salva Kiir, said the proposal would have required land-locked South Sudan to funnel oil through pipelines running across Sudan to the Red Sea, restricting its ability to construct planned alternative pipelines.
"This is an attempt to ensure that we do not build our own pipelines," he told reporters. "The agreement concentrates on restricting the export of oil through Sudan."
In the run-up to negotiations that began January 17, Khartoum began diverting southern oil to its refinery through a "tie-in" pipeline it had constructed. Khartoum also sent armed security forces to oversee the loading of southern oil onto ships it controlled.
Despite such actions - which were protested by oil companies in letters released by South Sudan - Juba accused the AUHIP of siding with Khartoum, according to a confidential government document provided to The National.
"The conclusion is that this new proposal inexplicably suggests AUHIPs' abandonment of its own commitment, to achieve mutual viability of the two states," wrote Pagun Amum, the south's chief negotiator, in a January 25 letter addressed to Pierra Buyoya, a member of the panel.
Mr Amum noted that his government had supported the previous AUHIP proposal, which would have required the south to transfer US$2.6 billion (Dh9.5bn) to Khartoum, over a four-year period, to ease the "fiscal gap" left when the south seceded.
The government in Khartoum rejected that proposal and continued to confiscate southern oil, claiming it was taking what it was owed in unpaid transit fees.
"Shockingly and to our astonishment and dismay" the new proposal requested South Sudan to increase the transfer to $6.5bn, wrote Mr Amum.
For its part, Khartoum blamed Juba for the failure of the talks.
"The Government of Sudan … called on the southern government to review its hostile leaning towards Sudan," according to a statement by Khartoum's delegation, posted on the state-linked Sudanese Media Centre.
When South Sudan seceded, a common analysis held that their mutual dependence on oil - produced mainly in the south, but using northern pipelines, processing and export facilities - would force the parties to resolve outstanding issues. Oil revenue would also be used to build a newborn nation, which is one of the world's poorest.
But the shutdown - if it continues - throws such theories into doubt.
"The shutdown in oil production by South Sudan would threaten the loss of nearly all of South Sudan's public revenue and cause further violence in the border areas with Sudan, suggesting that this is unsustainable for any meaningful period of time," according to a January 27 report by Standard Chartered.
But southern officials insist that the oil will not begin to flow again until a deal is reached that resolves all outstanding issues.
A prolonged shutdown and loss of oil revenues could also cause security issues within both countries, according to a January 27 report by Saferworld, a UK-based organisation promoting security. The report noted that South Sudan spends more than a third of its budget on security.
"If the military payroll is disrupted, troops will get restive - a problem which has led to serious violence in the past," the report said.
Sudan could face similar problems, the organisation warned, noting that oil accounted for 36 per cent of that government's revenues before the south's secession.
"The state's financial patronage also upholds what stability there is in the North, so less oil money will spell trouble - the country already faces active rebellions in several states," the report said.
Mr Amum has said South Sudan would "turn east" to neighbours Kenya and Ethiopia to export its oil. South Sudan already signed a memorandum of understanding with Kenya to build a pipeline from its oilfields to Kenya's northern coast. South Sudan says it has also approached Ethiopia about a possible pipeline going to Djibouti's port.
* With additional reporting by Associated Press