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Saturday, September 18, 2004

THE 'SO WHAT?' OF SUDANESE OIL SANCTIONS

The U.N. Security Coucil today adopted a resolution that threatens sanctions, including oil sanctions, against Sudan unless it ceases atrocities in Darfur and assists in a peaceful resolution of the issue. The vote was 11-0 with four abstentions, China, Russia, Algeria, and Pakistan. The resolution was delayed as the U.S. worked to convice the Chinese to abstain instead of casting its vote against the resolution, thus quashing it. Several drafts were presented to the Chinese, each one with sucessively softer lanaguage to appease the Chinese delegation. In its final form, the oil porition of the resolution threatens that if Sudan doesn't cooperate, the Council "shall consider taking additional measures . . . such as actions to affect Sudan's petroleum sector . . ." Softer language indeed.

It was not immediately reported whether or not the Chinese were worried specifically about the oil part of the sanctions resolution. However, it just so happens that China does in fact have a significant investment in Sudanese oil. Most Sudanese oil is produced by the Greater Nile Petroleum Operation Company (GNPOC), owned 40% by the Chinese National Petroleum Corporation (CNPC), 30% by Petronas of Malaysia, and 25% by India's state oil firm (Canada sold off its original 25% stake to India due to pressure by human rights groups, while U.S. firms have long been barred from doing business in the African nation, which formerly hosted Usama bin Laden and has long been listed on the State Department's list of Terrorist states). The GNPOC consortium was founded in 1996 and in 1998 began construction of a pipeline to trasnport the inland Sudanese crude 930 miles to the Red Sea for export. The pipeline was completed in 1999 and GNPOC currently produces and delivers from 270,000 to 350,000 bbl/d of highly valued light sweet crude --exported primarily to China and India.

Furthermore, China has aggressive plans for further development of Sudanese oil. CNPC owns concessions to two further fields in Nile Basin, which they expect will yield well over 300,000 additional bbl/d oil by 2006. One of those fields, in fact, borders on the Darfur region that is the focus of today's U.N.S.C action.

So, did the Chinese have oil in mind when they softened the language in the U.N. sanctions on Sudan? Most likely, yes. While the amount of oil that China gets from Sudan is a relatively small percentage --probably around 10%-- it is a country increasingly intent upon securing upstream investments, such as its recently announced commitment to Equatorial Guinea and other projects. In addition, from a business standpoint, the billions of dollars to develop the Nile fields and build the pipeline have already been spent, and the payoff is only now being realized. Thus not only is there a clear affect here on the Chinese national interest --i.e. their energy security-- there is a strong bureacratic/economic reason to keep Sudanese oil flowing.

While Malaysia and India both have a leser -though significant- interest in Sudanese oil, neither of them has a seat at present on the U.N. Security Council. Nor does either have permanent veto power in the Council to boot.

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