Oil, Conflict, and Promise

A Tale of East Africa’s Energy Future

"East Africa, like much of the continent, is full of untapped potential, but that potential comes with a price—geopolitical instability and corruption are constant hurdles." – Doug Casey

The oil industries of Sudan, South Sudan, and Ethiopia are a case study in the perilous tension between immense opportunity and inevitable catastrophe. Long at the heart of East Africa's economic and political landscape, oil has been both the region's greatest potential driver of wealth and its most destructive force. These three countries are caught in an endless cycle: one that simultaneously offers transformative economic promise while entrenching geopolitical instability, internal strife, and infrastructural dysfunction.

As oil is often the elixir that transforms nations, in East Africa it has become a bitter brew—poisonous enough to incite wars, fuel corruption, and entrench poverty while offering the tantalizing hope of vast wealth. The region’s future is now at the mercy of geopolitical forces far beyond its borders. Yet, in the midst of this chaos, recent developments—Ethiopia’s 2 billion barrel oil discovery and the LAPSSET Corridor—offer tantalizing glimmers of hope, though the odds of success remain grim.

provided by IEA

Once the jewel of East African oil production, Sudan's oil industry has suffered a slow and painful collapse. Before its split in 2011, Sudan was one of the largest oil producers in Africa, with oil accounting for up to 70% of the national income. Oil revenues at their peak were over $10 billion annually, primarily shipped to China. Oil production topped over 500,000 barrels per day (bpd), placing Sudan in the ranks of oil-rich nations—at least until its disastrous divorce from South Sudan.

When South Sudan seceded in 2011, it took with it 75% of Sudan’s oil reserves. The result? A nation that had once enjoyed the wealth and power afforded by its oil riches found itself reduced to a mere shadow of its former self. Sudan now produces just 200,000 bpd, an amount dwarfed by its former output. The country’s refineries are outdated, its infrastructure dilapidated, and its pipeline networks are aging. Sudan’s oil sector is a wasteland—a reminder of the perils of an economy too reliant on a single resource, and the political fragility that comes with the curse of oil.

To make matters worse, geopolitical risks abound. Sudan’s internal political instability, chronic unrest, and its complex relationship with South Sudan—over oil revenue sharing and border disputes—only further cripple its prospects. Sudan’s oil revenues, once the lifeblood of the economy, now do little to halt the steady march toward economic collapse. The country’s oil industry remains a shell of its former self, crippled by political instability, financial mismanagement, and outdated infrastructure.

South Sudan, by all rights, should be a powerhouse. It possesses some of the richest oil reserves on the African continent, accounting for an estimated 40% of its GDP. South Sudan’s oil fields hold promise. But the nation has, for the most part, failed to capitalize on this wealth—its oil industry is more of a liability than an asset.

The civil war that broke out in 2013 ripped apart the country’s fragile infrastructure. What was once a production of 300,000 bpd plummeted to a terrifying low of 130,000 bpd. South Sudan’s future, it seems, has been hijacked by political instability and insecurity. With the country’s economy so tightly tethered to oil, its volatility is like playing Russian roulette with the future.

Not only is South Sudan stuck in a vicious cycle of internal conflict, but it is also at the mercy of Sudan’s pipeline network for exporting its oil. An arrangement that, to put it bluntly, is neither secure nor sustainable. In a region rife with territorial disputes, reliance on Sudan for pipelines is like having an unreliable partner in a criminal enterprise—at any moment, things could go catastrophically wrong. Tensions over border disputes and the security of oil infrastructure only add fuel to the fire, further destabilizing the region.

The future of South Sudan’s oil industry hinges on two factors: an end to its seemingly endless internal conflict and the establishment of new export infrastructure—preferably bypassing Sudan’s untrustworthy pipelines. Until then, South Sudan’s oil industry remains locked in a state of perpetual underperformance, with the potential for catastrophic disruptions.

While the country has long been a major player in East African geopolitics, it has never been an oil-producing giant. That is, until the recent discovery of 2 billion barrels of oil in the Warra Iluu region. This discovery places Ethiopia squarely in the center of the oil game. But like every other development in this region, the good news is tempered by a heavy dose of caution.

Ethiopia’s oil future is laden with uncertainties. The country’s infrastructure is underdeveloped, and the government’s capacity to quickly develop the oil reserves is questionable at best. The Warra Iluu discovery could be a game-changer, but Ethiopia has yet to develop the capacity to extract or export this newfound wealth. The country’s oil reserves are little more than a resource locked in the ground, with no clear route to global markets.

The geopolitical picture is also grim. Ethiopia’s ongoing civil war—particularly the violent Tigray conflict—has led to severe instability, distracting from any meaningful oil sector development. Political fragmentation and ethnic conflicts plague the country, making the implementation of large-scale oil extraction projects a distant dream.

Moreover, Ethiopia’s political tensions with its neighbors—especially Eritrea and Sudan—further complicate its oil future. With regional rivalries and border disputes still unresolved, Ethiopia's ability to capitalize on its newfound oil wealth is anything but assured. To make matters worse, Ethiopia has little to no access to the sea, making any export of oil a logistical nightmare.