JUBA // Sudan's army said yesterday it has launched a counterattack towards Heglig town in its main oil-producing region where South Sudanese forces took control earlier this week.
"Now we are moving towards Heglig town" and are "close," army spokesman Sawarmi Khaled Saad said in a statement.
Meanwhile, South Sudan said yesterday it would withdraw its troops if the United Nations deployed neutral forces in the area.
The statement followed days of ground fighting and aerial bombardment that analysts say have brought the countries closer to all-out conflict than any time since a two-decade civil war that ended with a 2005 peace agreement, which led to the south's secession.
The African Union demanded yesterday that South Sudan withdraw from the area a day after the country's president pledged to continue the occupation and blamed Sudan for instigating the conflict.
The AU said it was "dismayed by the illegal occupation" of the frontier region of Heglig, and called for the "immediate and unconditional withdrawal of the army of South Sudan". The AU also demanded that Sudan stop bombing southern territory, which it has done repeatedly, including an attack on a refugee camp in November and Wednesday's bombing several kilometres outside Bentiu, the capital of Unity state.
Heglig, which the south claims as its own, is vital to Sudan's economy because it has a field accounting for about half of its 115,000 barrel-a-day oil output. The fighting has stopped production there, officials say.
Speaking in Nairobi, Pagan Amum, South Sudan's lead negotiator at talks to resolve the dispute with Sudan, said his country was ready to withdraw under a UN mediated plan.
"On the ground, we are ready to withdraw from Heglig as a contested area ... provided that the United Nations deploy a UN force in these contested areas and the UN also establish a monitoring mechanism to monitor the implementation of the cessation of hostilities agreement," he told reporters.
Mr Amum said there were seven disputed areas and called for international arbitration to end the dispute over these regions.
The Khartoum government desperately needs the revenue from Heglig, as its economy has been reeling since Sudan lost three quarters of its oil reserves when the south separated last July.
"With more than half of its production shut down, Sudan is likely to very quickly face a fuel crisis with massive implications across the already ailing economy," said Dana Wilkins, a Sudan oil expert with the natural resources watchdog group Global Witness.
She said a continued occupation is likely to alienate many South Sudan supporters in the international community, especially as Heglig is "clearly within the boundaries of Sudan's current administrative borders".
"This prolonged occupation is also likely to be taken in Khartoum as a de facto declaration of war, opening up the floodgates for much more significant violence on both sides of the border."
Marc Mercer, an analyst with Eurasia Group, a political risk-assessment firm, said Khartoum would use all its military might to retake the oilfields. He said a refusal by the south to withdraw troops could bring the countries to the brink of war.
"The north has traditionally laid greater claim to Heglig since the south's independence, but the area technically floats between the north and the south despite the oilfields being operated under the north's view since independence," he said. "When negotiations do resume, questions over border demarcation in this area will be front and centre."
In Juba yesterday, about 200 people demonstrated at a government-organised protest against Sudan and in support of the occupation of Heglig, holding banners which read: "The people want the army to be in Heglig" and "They bomb children and women".
South Sudan's armed forces spokesman, Philip Aguer, said the army was still in control of Heglig and said there had not been any further fighting yesterday.
Heglig "is part of South Sudan and under our control. If they want to retake it, let them try it. We are ready," he said.
* With additional reporting by Reuters