SOUTH SUDAN could have been off to a good start. Thanks to its oil riches, the world’s youngest country qualified as a middle-income one when it got independence from Sudan in 2011. The new country also had minerals, livestock and timber for export. As it was near the bottom of most global development indices on health and education, it received more aid per person than almost anywhere else on earth.

Yet 13 years on, things in South Sudan have not gone to plan. The country is experiencing perhaps its worst economic crisis since independence. The malaise is partly the result of years of civil war and woeful economic management. The more immediate reason is the shutdown of its main oil pipeline following fighting in Sudan, to the north. The crisis is threatening to destabilise the government, which may jeopardise the country’s fragile peace.

Civil war in Sudan has made things worse. It has forced nearly 1m refugees to flee south and diminished cross-border trade in almost everything except guns and mercenaries. Yet the damage inflicted on South Sudan’s oil sector may prove the most significant consequence. Oil exports make up at least 85% of government revenue. Since February, a 1,400km-long pipeline that used to carry two-thirds of the oil north to Sudan’s Red Sea coast has been out of action, in part due to fighting in areas it crosses (see map).

That has tanked the government’s finances. The IMF estimates that the economy shrank by more than a quarter in 2024. The local currency has fallen to an all-time low against the dollar. “There’s no money, no business,” fumes Peace Mary, a mother of six who sells smoked fish at a market stall in Juba, the capital. Because South Sudan imports almost everything from wheat to fuel, inflation this year rose to about 120%, one of the highest rates in the world. The owner of an upmarket restaurant says a customer recently paid for dinner with a crate full of banknotes.

Salaries for most civil servants and soldiers have not been paid for the best part of the year. Schools in Juba have closed as unpaid teachers stopped showing up for lessons. At the finance ministry, people are waiting in long queues to plead with officials for financial support. “They’re supposed to look after me,” complains Wisley John, a blind army veteran clutching a letter from the ministry of defence requesting money for his medical treatment. “But they say there’s nothing in the bank.”

The government says it is trying to ease the squeeze. “The past nine months without oil money has highlighted the importance of restructuring the economy,” says Marial Dongrin, the finance minister. This means boosting exports of minerals and agriculture, collecting more tax and printing less money. Faced with a balance-of-payments crisis, the government has said it is seeking a $250m emergency loan from the IMF. To reduce its reliance on Sudan, it has floated the idea of teaming up with China to build an alternative oil pipeline through Ethiopia to the port of Djibouti.

The government, however, has had more than a decade to diversify the economy. Yet there are still barely any non-oil exports. The state had been failing to pay civil servants and contractors long before the oil stopped flowing. At the same time, members of South Sudan’s political elite have amassed vast wealth since the country became independent.

Even if the pipeline were turned back on tomorrow, the troubles in the oil sector would hardly disappear. Production peaked at more than 350,000 barrels per day in 2011 and has been in steady decline ever since. In August Petronas, a Malaysian firm, announced it was selling its 40% stake in the oilfields after 14 years, in part due to rising costs resulting from the broken pipeline. The company has since launched legal action against the government for blocking a proposed $1.25bn takeover by a British energy firm.

The biggest worry is that the crisis could lead to more fighting. For all the failings of Salva Kiir, South Sudan’s first and only president, he has been using oil money to keep the peace between fractious elites. Civil war erupted just months after the end of a previous pipeline shutdown.

Some South Sudanese fear history may be repeating itself. In November the army exchanged fire with security personnel loyal to the former national-security chief, whom the president had sacked the previous month. Mr Kiir has since fired more officials, including the army’s chief of staff and the police chief. “When you remove the glue, it can all break down,” warns Daniel Akech of the International Crisis Group, a Brussels-based think-tank.

South Sudan’s government wants the warring parties next door to accept a buffer zone around the pipeline where fighting would be off-limits. Yet without a ceasefire in Sudan, guarantees will be elusive. All the more reason to find a source of revenue other than oil. ■