Oil Sector: The Approach and Requirements for Rebuilding its Contribution to the Economy

Report – Rehab Abdullah

Oil exploration in Sudan began after signing an agreement with the American Chevron company in 1975, followed by agreements with the French Total company and the American Sun Oil company in 1981 and 1982. Between 1989 and 1999, the Sudanese government signed agreements with various oil companies, including the Canadian companies IPC and SPC in 1991 and 1993, the Gulf company GPL in 1995, the Chinese National Petroleum Corporation (CNPC) in 1995, and the consortium company. The Greater Nile Petroleum Operating Company (GNPOC) was established in 1997, leading to the formation of several oil companies across different regions of the country.

The oil sector remained the main support for the Sudanese economy until the secession of the south, taking most of the production with it. However, it continued to contribute to the economy. The outbreak of the war in Sudan in mid-April 2023 caused oil production to fall to around 18,000 barrels per day, compared to its production before the war, which was around 38,000 barrels per day in March 2023 and around 44,000 barrels per day in January 2023. Now, there is a reality that demands finding a way to resume the sector’s contribution to the economy.

Tight Measures Economic expert Dr. Mohamed Al-Nayir confirmed the oil sector’s potential to bring about a transformation in Sudan’s economy. However, he conditioned this by several measures, including a well-structured plan and the provision of necessary financial resources.

Urgency to Operate the Refinery Dr. Al-Nayir, speaking to Al-Ahdaath, highlighted the urgent need to operate the oil refinery, stating that the restoration of the Khartoum refinery is a significant event that requires swift action to restart it. He pointed out that Sudan possesses qualified Sudanese personnel to operate the oil sector but needs expertise from friendly countries such as China and Russia, particularly in the oil sector. This collaboration could expedite the refinery’s reopening. Al-Nayir emphasized that the refinery provides approximately 45-50% of the cost of oil imports since it covers up to 50% of domestic consumption of petroleum products, thereby reducing half of the import bill. This would positively impact the exchange rate.

Resuming the Flow of South Sudan’s Oil and Its Export Al-Nayir also highlighted the importance of the oil pipeline carrying oil from South Sudan, mentioning that although South Sudan has some agreements regarding oil, he affirmed that there is no alternative to exporting South Sudan’s oil except through Sudan’s land and ports. Securing the pipeline would make South Sudan’s oil and its export through Sudan available, generating foreign currency revenue.

Dr. Al-Nayir emphasized that the oil sector also needs to rehabilitate and develop the currently operating wells. He called for not relying on the West (America or Europe) to help Sudan develop this sector, stating, “I don’t think there is any hope in the West anymore, as the West has been punishing Sudan and not assisting it, continually imposing sanctions whether from America or Europe.” Therefore, he suggested that Sudan has no option but to turn east, focusing on the BRICS group specifically. He added that Sudan, with Russia and China, could rehabilitate and develop the existing wells and significantly increase production capacity.

Na’ir confirmed the possibility of distributing new exploration blocks, as Sudan has large areas yet to be explored, especially along the Libyan border. He confirmed that exploratory studies have proven that these areas contain confirmed quantities of oil. He added that this could be accomplished in the next phase to revive the oil sector. He noted that oil has a limited time span, and that within the next 20-30 years, Sudan will shift towards renewable and new energies. He highlighted that Sudan has significant advantages in these areas, whether through solar energy, wind energy, or Jatropha plant energy, among other renewable sources that will serve as alternatives to oil or fossil fuels, as demand for them is expected to decrease. He pointed out that Sudan could certainly benefit from significant development in the oil sector in the coming 20-30 years, utilizing it in the short term and directing its revenues to develop renewable and new energies. He said, “If Sudan manages to direct oil revenues to benefit from renewable and new energies, it will have taken a very significant step toward the future.” Na’ir conditioned all of this on the availability of financial resources and foreign currency to rehabilitate the oil sector and attract new companies, adding, “Certainly, all these things can lead to a transformation in the Sudanese economy.”

The need to ensure security

On his part, the economic advisor in Riyadh, Saudi Arabia, Dr. Abu Bakr Al-Tijani Al-Haj, emphasized the need for several requirements to resume oil operations and benefit the Sudanese economy from this latent resource. Speaking to Al-Ahdath, he listed the requirements as ensuring security in exploration and production areas, as well as providing the necessary manpower in the stages of oil exploration, production, refining, internal distribution, and export. He also stressed the importance of honoring contractual obligations. He attributed past failures to the inability of companies to drill new wells, which dramatically led to a decline in Sudan’s oil production. He asserted that drilling new wells is crucial to maintaining and increasing production levels, and that there should be more attention paid to exploration in new areas, as well as research and studies on oil extraction using the latest global technologies in the field.

Good marketing

Dr. Al-Tijani emphasized the necessity of establishing a central and robust database. He also called for increasing the number of trainees in this field to ensure smooth continuity of work at any time, as well as strengthening and improving the infrastructure required in the oil sector. He reiterated the importance of good marketing of petroleum products both domestically and internationally, describing it as an urgent necessity.

Former Minister of Energy and Oil, Engineer Consultant Ishaq Jamal, agreed with Dr. Na’ir’s viewpoint on the importance of Sudan turning eastward to help rehabilitate the oil sector. He referred to a preliminary agreement on this, during the participation of General Abdel Fattah al-Burhan, Chairman of the Sovereign Council, with Chinese companies on the sidelines of the China-Africa Cooperation Forum, considering this the beginning of the path to the return of Chinese oil companies to resume work in Sudan after the war. However, Ishaq emphasized that this requires a lot of technical and financial work within the framework of the stakeholders’ entitlements and the inclusion of strategic relations in the current political climate. He proposed forming a team of competent technicians, politicians, and experts familiar with the tactics of external actors to organize this file, starting from the current situation of the war and the post-war period, which is nearing its end. He cautioned against leaving this to the Ministry of Finance and Oil, especially since these institutions are busy with daily operations and lack the time or vision for strategic planning, provided they are involved with the team, studying the precise, actual, and practical intentions of the Chinese side within the framework of varied interactions. Ishaq revealed some details about the issue with Chinese companies even before the war, especially after the separation of the South, which took 75% of the produced oil, leaving Sudan with only 120,000 barrels per day, 50% of which was owned by Chinese and other Asian companies. He pointed out that the agreement allowed for the possibility of purchase, and this amount was enough only for the refinery. Sudan used to buy the companies’ share, but these payments were not made, and there was no financial plan to reschedule debts, a responsibility of the Ministry of Finance. As a result, Ishaq noted, the companies withdrew from the oil project. He added, “During our brief time in the ministry under the Eila government, we requested some time to take over our duties in the ministry and discuss ways to continue, but the December revolution occurred, which was hijacked early by agents from foreign countries and intelligence agencies, with one of their main agendas being to remove the Chinese and their successful projects in Sudan, especially oil. Initially, the main exploration operations were carried out by the American company Chevron, but they were blocked from extraction and independence as part of the policies of major countries like the US. Ishaq believed the goal was to prevent Sudan from launching its developmental trajectory through oil, using economic tools like low oil prices and also using the rebellion in the South as a form of coercion. However, he noted that China brought its companies and, with its knowledge of Sudan’s oil, started extracting oil under an agreement that was very attractive to the Chinese. As a result, the Sudanese economy began growing at an astonishing rate of 10% per year from 2000 to 2010, and Sudan achieved its highest economic growth in history, reaching $65 billion in 2008 due to oil. Because of this, external actors adjusted their strategies to reach a peace agreement with the South and manipulated the referendum for separation, creating and supporting the Darfur movements to exert pressure for the separation of the South.”