Saturday, February 7, 2009

Lundin Oil leaving Sudan

In a sign of the times, Lundin has sold its concession to continue exploring in Sudan, along with some other East Africa concessions. With oil at $40 a barrel, and stocks growing rapidly and projected to grow even more as the developed countries fall deeper into recession, prospects for rapid recovery look gloomy. This of course poses major challenges for the oil-exporting regimes of Africa, which rely on maintaining peace through generous disbursement to key urban and rural constituencies (as well as regime insiders). We can speculate about what happens in a downward oil price spiral. First workers in oil industries get laid off. Many of the exploration teams are foreign, so the hotels and catering companies that served their higher standards of living go bust. Will the Malaysians still want to operate the Grand Hotel, one of Sudan's finest, on the banks of the Nile? Then oil revenues to government go down, and suddenly all the projected spending has to be rethought. Builders are always the big beneficiaries of flush governments, so look for them to be hurting. Khartoum and Juba had been on building booms... that will definitely slow. Goverment services follow soon afterwards, and rural villages waiting for schools will end up waiting longer. By now you get the point: massive dissatisfaction amongst the well-educated and comparatively wealthy elites of the country. For the ordinary daily wage worker, the grind gets worse, but subsistence living means having to scrounge and scrape feels like more of the same rather than something radically different. The upshot is that mid-ranking officers connected to well-educated and connected politicians start plotting. And pretty soon you have a coup d'etat. How's that for a theory built on a small news story?

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