South Sudan gained control of most of the oil reserves when Sudan was split into two countries last summer, though landlocked South Sudan depends on Sudan for access to export facilities.
The International Energy Agency, in its monthly oil report, said the failure of both sides to find a resolution to a dispute over the sharing of oil revenue meant production could decline 25 percent.
"While it is impossible to predict the outcome, the broader set of economic and political factors at play mean that the two countries' oil output will remain at risk at least for the remainder of the year," the report read.
The IEA said this disruption is "bad timing" for Asian markets, which the agency said are expected to tighten as a result of the Sudanese crude oil production disruption. The IEA said China in particular could feel the pinch from the estimated production reduction of around 100,000 barrels per day for 2012.
Both sides remain at odds over the issue despite African Union efforts to end the stalemate.
The IEA added that disputes over borders, ongoing ethnic conflicts "and the potential for Sudan to use its military force are inflaming tensions between the two countries amidst a worsening economic situation."