KHARTOUM Sudan's President Omar Hassan al-Bashir said Friday tensions with South Sudan over oil transit payments could lead to war between the two countries.
Asked in an interview with state television whether war could break out with South Sudan, Bashir said: "There is a possibility."
He said Sudan wanted peace but added: "We will go to war if we are forced to go to war."
"If there will be war after the loss of oil it will be a war of attrition. But it will be a war of attrition hitting them before us," he said.
South Sudan took away much of Sudan's oil production when it split away from Khartoum as an independent country in July. Oil is the lifeline of both economies.
The landlocked South still needs to export its crude through the north's port and pipelines. But the two countries went their separate ways without agreeing how much South Sudan was going to pay Sudan to use its oil infrastructure.
The crisis came to a head when Khartoum said in January it had seized some southern oil as compensation for unpaid fees. South Sudan responded by shutting down oil production.
Bashir accused Juba of shutting down the oil flow to provoke a collapse of the Sudanese government. Khartoum has been fighting an economic crisis since the loss of southern oil, sparking small protests against high food prices and corruption.
Bashir said it was clear Juba did not want to reach an oil deal after his southern counterpart Salva Kiir had refused to sign during a meeting with him a proposal made by the African Union in Addis Ababa last week.
"They (the South) didn't sign and they will not sign," Bashir said, adding that Khartoum was entitled to 74,000 barrels of day of southern oil. Juba pumped 350,000 bpd prior to the shutdown.
"This is our right," he said.
There was no immediate comment from Juba. Kiir said on Thursday he had rejected the deal in Addis Ababa because it would have required the South to pay billions of dollars to Khartoum and keep exporting crude through Sudan.
South Sudan wants to develop an alternative pipeline to Kenya to bypass Sudan's facilities but oil insiders are skeptical the project is viable.
Bashir said the economic situation was difficult for Sudan this year but the country would boost current oil production of 115,000 bpd by 75,000 bpd. Sudan's current output serves only domestic consumption.
Bashir said Sudan would also export gold worth $2.5 billion this year and expand the agricultural sector to compensate for the loss of oil. Experts have expressed doubts that raising gold exports and other plans to diversify the economy will offset the loss of oil revenues of $5 billion booked in 2010.
They say economic diversification has been hampered for years by corruption, misplanning and a U.S. embargo in place since 1997 for hosting militants such as Osama bin Laden in the past.
Apart from oil, the north and south also need to mark the 1,900 km (1,200 miles) long border and find a solution for the disputed region of Abyei. Khartoum also wants Juba to share Sudan's external debt of $38 billion.
Both countries regularly trade accusations of supporting rebels on each other's territory.
To read an analytical story about the conflict between Sudan and South Sudan double click on: [ID:nL5E8D136T]
(Reporting by Ulf Laessing and Khalid Abdelaziz)