Sunday's move by Sudanese President Omar al-Bashir to shut pipelines carrying the south's crude, the fledgling state's primary revenue earner, to the export terminal at Port Sudan has taken the longtime adversaries back to the brink of armed confrontation only three months after they signed a peace pact.
Khartoum appeared to back off, saying it would forget about a shutdown if the South Sudanese government of President Salva Kiir in Juba, the south's capital, halted support for rebel forces operating in the north against Bashir's regime.
Juba denies its aids rebel groups who seek the ouster of Bashir, who seized power in a military coup in 1989.
The combined production of these two states is around 350,000 barrels per day. Globally that has little effects as most of it goes to China.
But the domestic impact in terms of revenue loss could be catastrophic to both sides, and stoke up unrest across East Africa as it embarks on a rapidly emerging oil and gas boom.
Under the March 12 agreement, South Sudan started to pump 200,000 bpd in April after a 16-month production shutdown because of disputes with Khartoum that plunged both states into economic crisis.
Output was 300,000 bpd before that shutdown began in January 2012.
At the time the March deal was signed, few people thought it would last and that's the way it seems to be playing out. Hostility between the Arab Muslim north and the south, which is overwhelmingly Christian and animist, runs deep.
The two sides fought a ruinous civil war more or less continuously from 1955-2005 before they signed a comprehensive peace agreement. An estimated 2 million people died, mostly from famine and disease.
The CPA provided for a referendum in the south on its future status, which was overwhelmingly in favor of independence. South Sudan was officially born July 9, 2011.
But oil remains an immense obstacle to peace.
The south contains about 75 percent of the former Sudan's oil reserves, an estimated 6.6 billion barrels, on which both states still depend. But the only way the Juba government can get its oil to market is via the northern pipeline to the Red Sea.
If Bashir shuts out southern oil from the pipeline, a process that could take two months, both states will suffer economically. Both depend on oil for the foreign currency they need to import food and fuel.
And it's for that reason diplomats and U.N. officials seeking to keep the tenuous peace believe Bashir's threat could be partly aimed at his own restive population and his armed forces in particular.
He's under growing domestic pressure because of mounting economic problems and for losing the oil-rich south, as well as long-running rebellion in the Darfur and Kordofan regions.
Dissent is growing especially harsh within Khartoum's ruling class and the 105,000-strong army.
In November 2012, the regime claimed it had thwarted a coup centered on the military. Several senior commanders, including a former intelligence chief, were arrested.
Many officers are bitter about the leadership's inability to defeat the rebels of the Sudanese Revolutionary Front.
"As South Sudan and Sudan attempt to work out a more permanent settlement regarding oil revenue and border demarcation -- the current agreements expire in 3 1/2 years -- both countries, but especially Sudan, may use deliberate disruptions to oil flows as leverage in negotiations," the U.S. global security consultancy Strator observed.
On May 20, Juba accused Khartoum of blocking southern oil from flowing to the Heglig processing plant, a strategic facility on the contested 1,250-mile border. In retaliation, the south reduced production from a claimed level of 200,000 bpd to 105,000 bpd.
"Sudan will likely build up pressure around Heglig to avoid going into negotiations facing a less lucrative deal than the one signed in March," Statfor noted.
"South Sudan, meanwhile, will try to build up regional support and financial backing for an alternative pipeline" -- through Kenya to the Indian Ocean -- "even though interest in such a project has been tepid in the past."
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