* North and South Sudan split last year
* Borderlands suffer from loss of trade
* Presidents meeting in Addis Ababa
By Alexander Dziadosz
BENTIU, South Sudan, Sept 24 (Reuters) - Sandwiched between two of South Sudan’s biggest oilfields, residents in Bentiu, a dusty town near the boundary with Sudan might expect a steady supply of cheap fuel.
But since cross-border trade halted ahead of South Sudan’s secession last year, Unity state and other frontier regions have had to truck petrol down hundreds of miles of dirt roads from Kenya and Uganda at a premium, spurring double-digit inflation.
Traders and officials are cautiously hoping peace talks between the leaders of north and south - under way in Ethiopia on Monday - will soon allow commercial traffic to resume across the boundary, restoring historic supply routes for food, fuel and consumer goods.
Gasoline used to come from refineries in the north - faster and cheaper than imports from South Sudan’s southern neighbours.
“We hope the border opens. Prices would ease and expenses would come down,” said 25-year-old Abubakr Hamid, in his shop made of a sticks and corrugated iron in the scruffy market in Bentiu, Unity’s state capital.
Resuming landlocked South Sudan’s oil exports - shut off in January in a dispute with Khartoum over transit fees - would also jumpstart business, he said.
“There’s been a recession in the market. Before this, trade was going well, things were fine, but now there’s no money,” he said, surrounded by his wares - drinking glasses, kitchenware and plastic thermoses, whose price had doubled to 60 South Sudanese pounds (around $15) since the border closed.
South Sudan seceded from Sudan under a 2005 peace deal that ended decades of civil war, but the two sides failed to agree on a wide range of issues including how to share oil wealth and who should control several hotly-disputed border regions.
Border skirmishes threatened to boil over into a full-blown war in April when South Sudan’s national army moved north from Bentiu to occupy Heglig, a border region which had been producing about half of Sudan’s remaining oil.
Mediators in African Union-brokered talks in Addis Ababa are now hoping to get the two to agree on a demilitarized border zone that would allow the South to continue exporting oil through Sudan and, potentially, make it easier for traders like Hamid to import goods from the north.
“We are hoping for a soft border, a border where people move freely with no fear. Traders will be free on both sides,” Unity state’s Deputy Governor Michael Chiangjiek said in his Bentiu offices.
“We anticipate it will also ease the security tension between us and the north, and this is very important.”
South Sudan’s official annual inflation rate eased to 43.3 percent in August, but many analysts estimate prices have actually risen much more, especially near the border with Sudan.
Although southern rebels fought a decades-long insurgency against northern rulers before the peace deal, Sudan’s north and south were deeply intertwined economically.
When the border was shut last year - a development Southern officials blame on Khartoum - traders started to bring goods from Uganda and Kenya instead, some by boat down the Nile, but most by land on bumpy dirt roads. The rainy season has made that task even harder, turning many routes to sludge.
Mubarak Suleiman, 25, said it took him five days to travel from South Sudan’s capital Juba to Bentiu - a journey of over 600 km (375 miles) - because of flooding.
“Transportation is tough now,” he said. “We couldn’t find a car. If we found a car, it was broken down.”
He estimated prices for the goods at his store - including pens, flashlights, notebooks, locks and paint-brushes - had risen around 60 percent since he had to start importing them from Kampala in Uganda via Juba.
“For four or five years, we weren’t affected like we’ve been over the last few months.”
Another shopkeeper, Gatmai Choul, 35, said one problem was authorities’ newfound zeal for collecting taxes since shutting down the oil industry in January. The petroleum sector contributed some 98 percent of South Sudan’s state revenues.
“We are very concerned about this, but this thing is not in our hands. It is the north who has closed the border,” he said, sitting in his shop made of corrugated iron sheets and stocked with biscuits, lighters, flip-flops, packets of tea and soap.
While some smuggling has continued, it has not been enough to make up for the loss of formal trade. Chiangjiek said authorities were encouraging locals to farm more to cut down food imports, before flooding interrupted the effort.
Unity state is also planning a small oil refinery to cut back on fuel imports, but it is unclear how long that will take to build.