(Reuters) - South Sudan has totally shut down oil output in a dispute with Sudan over export transit fees and will only restart after the two reach a deal covering border security and the disputed Abyei region, its oil minister said Sunday.

South Sudan seceded in July under a 2005 peace deal that ended a civil war in which around 2 million people died. The possibility that war could restart over the oil dispute was a great concern, U.N. Secretary General Ban Ki-moon said.

Both sides have failed to resolve a long list of disputes including how to disentangle their oil industries, divide debt, mark the poorly drawn border and decide who should control Abyei, a region the size of Connecticut that was a major battleground during the war.

Landlocked South Sudan took about three-quarters of Sudan's oil output when it broke away, but still needs pipelines running through its northern neighbour to export crude.

Juba depends on oil for about 98 percent of state revenues, while for Khartoum transit fees are crucial since it lost the oil fields themselves last year. That plunged it into a severe economic crisis.

The new U.N. member state said Jan. 20 it would shut off its roughly 350,000 barrels per day of output after Khartoum started taking some oil in lieu of what it called unpaid fees. The shutdown was 100 percent complete on Sunday, Minister of Petroleum and Mining Stephen Dhieu Dau told Reuters in Juba.

To restart pumping, he demanded seized cargoes of oil be released, stolen crude returned and for Sudan to cease support for rebel groups in South Sudan, something Khartoum denies.

Oil production will restart when we have a comprehensive agreement and all the deals are signed, said Dau, adding that any deal had to be overseen by the international community and linked to the demarcation of the border and control over Abyei.

Sudan must recognise the 1956 border, which means they must give back all the areas under occupation, he said, referring to an internal boundary used around the time of Sudan's independence.

Speaking at an African Union summit in Addis Ababa, Ethiopia, Ban said he was greatly concerned that the dispute could reignite armed conflict and blamed a lack of political will on both sides. Their two leaders met on Friday but failed to resolve the row.

(South Sudan) President Salva Kiir and (Sudan) President Bashir should fully engage themselves ... making the necessary compromise and flexibility, he told reporters.


Many South Sudanese see the oil dispute as a continuation of their struggle against Khartoum. Analysts say Sudan's demands of $36 a barrel are in well in excess of international norms. South Sudan has proposed a fee of less than $1 a barrel.

Sudan meanwhile accuses Juba of backing rebels of the Sudan People's Liberation Movement North (SPLM-N) in the border states of Blue Nile and South Kordofan.

Tensions have also remained high over Abyei, where Khartoum sent tanks and troops in May. It has since said its troops would leave once a U.N. mission for Abyei (UNISFA), consisting of 4,000 Ethiopian troops, was fully deployed but just under half that number are there now.

Ban urged Bashir to ensure Sudan cooperated with the United Nations to help avoid fresh fighting there.

We have a serious impediment in the movement of United Nations peacekeepers in UNAMID and UNISFA because of a lack of cooperation, he said also referring to the joint U.N./Africa Union force in nearby Darfur.

A spokesman for Sudan's Foreign Ministry, El-Obeid Morawah, said the charge was not correct and that the government was not restricting the movement of peacekeepers in either region.

Industry sources say Sudan has already sold at least one tanker-load of seized South Sudanese crude since the row broke out, but on Saturday Khartoum said it would free other tankers being held at port to help defuse the dispute.

Dau said that four cargoes in question had not left the port yet, but that its agent in Sudan had been told to prepare documentation, meaning it was possible they could leave on Sunday or on Monday. China, their biggest customer, buys 5 percent of its crude oil imports from the two.

South Sudan was committed to negotiations but first Khartoum must take some steps, said Dau.

Sudanese negotiators and oil officials were not immediately available to comment.

(Reporting by Hereward Holland and Yara Bayoumy; Writing by Ulf Laessing and Alexander Dziadosz; Editing by Ben Harding)