Oil Plunge Casts Doubt on South Sudan’s Plan to End Two-Year War – Bloomberg

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South Sudanese rebel leader Riek Machar returned to the capital of the world’s newest nation to rejoin the government and end a two-year civil war. An economic crisis caused by the conflict and a plunge in oil prices could derail everything.

The government is almost bankrupt due to sliding crude revenue, while inflation in the city, Juba, is raging at more than 240 percent and millions of people face starvation. If the state can’t find the cash to pay the thousands of government soldiers and rebel fighters, violence could flare again.

“Power-sharing needs a rapidly expanding budget,” Alex de Waal, executive director of the World Peace Foundation at Tufts University, Massachusetts, said in a interview in Ethiopia’s capital, Addis Ababa. “The same formula is unworkable at a time of extreme austerity.”

Tens of thousands of people have been killed and more than 2 million have fled their homes since the war began. Repeated regional efforts to broker peace finally led to an August agreement between Machar and President Salva Kiir to form a transitional administration to prepare the country for elections within 30 months.

Resume Role

Machar took an oath to resume the vice presidency on Tuesday before members of his group assume 10 of the 30 ministerial positions. Parliament will be expanded to 400 lawmakers by adding 50 Machar allies and 18 from other factions, with the new administration set to review the constitution and military, and improve economic management.

The government, which relies on oil for almost all its revenue, has seen crude production fall by at least a third to 160,000 barrels per day since the war began. The slump in global oil prices and the fees South Sudan pays neighboring Sudan for its transfer by pipeline mean Juba may be earning just $5 per barrel, according to Luke Patey, a researcher at the Danish Institute for International Studies in Copenhagen.

The government “will have a more difficult time paying its army plus the militias integrated from the opposition,” he said by e-mail. “This alone may not spark a renewed conflict, but it does not bode well for stability as fighters on both sides expect a peace dividend.”

Party Split

The transitional government’s success will depend on its approach to the economic crisis, according to Marial Awou Yol, dean of the College of Social and Economic Studies at Juba University.

Kiir and Machar need to agree on a budget that cuts government spending and imposes fiscal discipline, he said in an April 15 interview. “If they work together, put forward a constructive economic plan, they can move the country out of the crisis it is in.”

Machar was fired as vice president in July 2013 and announced he would challenge Kiir for the presidency. That split the ruling party, leading to fighting within the army that evolved into civil war. Some clashes were between the nation’s two most populous ethnic groups — the Dinka, to which Kiir belongs, and Machar’s Nuer.

‘Remilitarizing Juba’

Rebel fighters began returning to Juba in March and number about 1,370, while the government said last week it withdrew all but 3,300 soldiers to sites about 25 kilometers (15.5 miles) from the city. A neutral force should be securing Juba during the transition rather than the former warring parties, according to De Waal.

“Remilitarizing Juba — having the armed forces of the two contending parties in the city — is insane,” he said.

A decree by Kiir to increase the number of regional states from 10 to 28 changes the power-sharing allocations, which was based on the original number of regions. Rebels say the regional structure must be renegotiated for the transition to be successful.

Another sticking point could be the continued rejection by Kiir loyalists of Machar’s presidential ambitions, according to Harry Verhoeven, who teaches African politics at Georgetown University’s School of Foreign Service in Qatar.

“Machar wants to become president and lots of people will never accept that,” he said in an interview.

Oil Plunge Casts Doubt on South Sudan’s Plan to End Two-Year War – Bloomberg