Beginning in the late 1990s, China made major investments in Sudan’s oil sector. When Sudan was still one country, China developed the oil fields initially discovered by the American company Chevron, built the pipelines for transporting crude from Sudan’s interior to Port Sudan on the Red Sea and built the oil refinery. China obtained control of 40 percent of Sudan’s oil production and shared the remainder with the governments of Sudan, Malaysia and India. When the oil fields were operating at maximum capacity, China obtained between 5 and 6 percent of its total crude imports from Sudan.
During the six year period during which southern Sudanese decided whether to remain part of a unified Sudan or opt for independence, it became apparent they would vote for independence, China understood early in the transition process there would eventually be two Sudans and concluded that it had to improve its strained relations with southerners in order to assure continued access to its oil investments in an independent South Sudan.
China had been a major arms supplier to the northern government during its war with the south, a fact that angered many southerners. As it has done so frequently in Africa in recent decades, China chose to pursue a pragmatic policy toward the two Sudans. It maintained close ties with Khartoum in the north, while also working to improve links with the nascent southern government that was developing in Juba. China was one of the first countries to establish a consulate general in Juba, which became an embassy after south Sudan’s independence. Beijing extended invitations to numerous high-level southerners, including current President Salva Kiir, to visit China and promised to invest heavily in South Sudan. Southern Sudanese voted for independence in January 2011 and formally obtained independence from Sudan on July 9, 2011. About 25 percent of the crude production capacity remained under the control of the northern government and 75 percent went to newly independent South Sudan.
When South Sudan became independent, there were numerous unresolved disagreements between the north and the south. One of them was a failure to agree on how to divide the oil revenue that Khartoum had once totally controlled. Juba now operated most of the oil fields, but Khartoum still controlled all of the facilities for exporting crude. There was a huge difference between what South Sudan was willing to pay Sudan to use the pipelines, and what Khartoum insisted that Juba pay. The inability to reach agreement resulted in Juba’s decision in January 2012 to shut down all production in the south. Everyone, including China, was a loser.
China worked quietly behind the scenes with other interested parties, especially the African Union High Level Implementation Panel, to end the deadlock. Juba and Khartoum finally agreed in August 2012 on a package deal whereby Juba will reimburse Khartoum much less than originally demanded for use of the pipelines and provide Sudan $3 billion in financial assistance. China welcomed the agreement; a senior official commented that China “appreciates the practical, flexible and responsible manner the two sides showed during the negotiations as well as the efforts made by the African Union.” China also urged South Sudan to resume normal crude production and its export as soon as possible.
By all accounts, it appears that the revenue sharing agreement will be implemented. It is not possible, however, to resume crude production immediately. There was damage to some of the producing fields during nascent hostilities between the two Sudans, and, in any case, it takes time to prepare the pipelines for a resumption of the flow of crude. Oil from South Sudan is not expected to begin flowing until February 2013, more than a year after the shutdown. In the meantime, China is trying to build its relations with South Sudan while not damaging its longer and closer ties with Sudan.