The United States opens South Sudan's oil sector

Dec 08, 2011 12:00 AM

by D. Scott Nance and Cari N. Stinebower

The Office of Foreign Assets Control (OFAC) announced in a December 8, 2011 Federal Register Notice that it was lifting economic sanctions that had prohibited US Persons from dealings with the petroleum and petrochemical sector in the Republic of South Sudan.

These sanctions were in place largely because of the benefit the Government of Sudan receives because crude from South Sudan makes it to market at Port Sudan via pipelines through Sudan -- and the Government of Sudan receives some benefit from this process.
The United States had long supported the independence of South Sudan from Sudan and the Government of South Sudan has urged OFAC and the State Department to lift the remaining sanctions, arguing that the prosperity of the new republic depended largely on its ability to attract American investment and expertise, especially in the oil sector.

In amendments to the Sudan Sanctions Regulations, 31 CFR Part 538, OFAC has authorized US persons, including both US citizens and companies, to engage in “all activities and transactions relating to the petroleum and petrochemical industries in the Republic of South Sudan”.
This new general license is quite broad, and permits involvement in exploration, development, production and investment in the petroleum and petrochemical industries in South Sudan, among other activities. The new regulation explicitly allows American participation in downstream activities, including the refining, sale and transport of petroleum from South Sudan, so long as the petroleum in not refined in Sudan.

The changes to the sanctions go beyond the petroleum industry, as the new regulation also allows all other goods, services, and technology to be transhipped through Sudan for use in South Sudan (subject of course to normal US export controls).
The regulation also authorizes the payment to the Government of Sudan of pipeline, port, and other fees associated with such transhipments.

The new regulations also remove sanctions that had barred many financial transactions involving South Sudan. Even after independence, many transactions involving South Sudan continue to pass through Sudanese banks.
The regulations allow all financial transactions “ordinarily incident” to activities in the petroleum and petrochemical industries in South Sudan, even if the transaction involves a Sudanese bank, so long as any transaction between a US depository institution and one owned or controlled by the Government of Sudan pass through a non-Sudanese bank.

The new regulations will make it significantly easier for US persons and companies to invest in all sectors of the South Sudanese economy.
These General Licenses also are well-timed given the State Department-hosted conference on investment on South Sudan.

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