By Hereward Holland
BENTIU, South Sudan (Reuters) - A few months before South Sudan broke away to become the world's newest nation, James Luong Kiir's pharmacy was pulling in around 5,000 South Sudanese pounds (around $1,500) a month -- a decent living in Bentiu, capital of the conflict-stricken Unity border state.
But since May, a halt in trade with Sudan has forced Kiir to start bringing medicines by boat from South Sudan's capital Juba instead of importing from Khartoum, chopping his earnings in half.
"For me to go to Juba and bring them by river or air costs a lot of money. And when I bring (medicine) here people don't have enough money to buy it," he said, leaning on the pharmacy's counter, a fan slowly rotating above his head.
Prices have soared in South Sudan's volatile northern border regions this year, fuelled by East African drought, rebel fighting and what some analysts describe as a politically-motivated trade blockade, stinging average South Sudanese.
The challenges point up the difficulties the former rebels running the country face as they try to transform the gun-flooded territory into the stable state Western backers and regional trade partners anxiously hope for.
South Sudan seceded from Sudan in July after voting overwhelmingly for independence in a January referendum, six years after signing a peace deal that ended decades of civil war.
The secession went peacefully, but relations have stayed tense over a raft of unresolved disputes over issues including oil, debt, pensions and the position of the ill-defined border.
Juba and Khartoum have not agreed how much South Sudan should pay as a transit fee to export its oil through pipelines running through Sudan, for example, making it unclear how much money each government will have and complicating economic planning.
Roaring inflation has compounded the challenges in both countries, with the annual rate in October at about 20 percent in Sudan and 71 percent in South Sudan, officially driven by rising food and non-alcoholic beverage costs.
Analysts say the spike in South Sudan's prices has been fuelled mainly by the halt in trade with Sudan and high inflation in new trading partners Uganda, Kenya and Ethiopia, who face severe food shortages caused by a regional drought.
BLOCKADE AND DROUGHT
The impact of shifting trade routes has been more acute for states bordering Sudan because of their historically stronger trade ties with Khartoum.
In Bentiu, a town of donkey-drawn water carts and shiny non-governmental organization 4x4s, the cost of a 50-kg (110-pound) bag of sugar has risen 42 percent to 500 South Sudanese pounds, and a 100-kg bag of sorghum has tripled to 450 pounds since May, local traders say.
Soap has doubled in price and the cost of a soda has increased more than two-fold.
"Since the blockade of the road between Khartoum and the South here, the prices have already gone up," trader John Bentiu Kadit said at his roadside stall. "Sugar and the rest are now coming from Juba by the river Nile."
Representatives from both countries have been meeting in Ethiopia's capital Addis Ababa to work their way through the long list of issues that still need agreement, but there have been few outward signs of progress.
The dispute over oil, vital to both country's economies, heated up in November when Sudan said it would take a portion of the South Sudanese government's crude exports until the two sides agreed on the transit fee issue.
Some analysts say Sudan may be using the threat of a trade blockade to force South Sudan's hand at the talks, which officials in Khartoum deny.
"This isn't actually an official blockade. It's just a lever of influence that Khartoum is using to put pressure on South Sudan in its ongoing negotiations," said Chris Phillips, a researcher at the Economist Intelligence Unit.
Sudan's foreign ministry spokesman El-Obeid Morawah said Khartoum had not taken any action to stop trade between the two countries.
"There is no decision to block the trade. Maybe there are some difficulties due to security issues or something like this," he said. He also accused South Sudan of failing to cooperate on setting up checkpoints and resolving other border issues.
Traders in Unity state have been making up for the lost trade by switching supply routes, state governor Taban Deng said.
"This closure of the border was a wake-up call," he said. "We have managed to fill the gap by bringing in supplies and encouraging traders to bring in commodities from East Africa."
But prices could still spiral further upwards.
The United Nations says all roads leading into Bentiu are at high risk of landmines and advise against all travel in and out of town, which has effectively cut off the settlement.
Dozens of people have died in recent months after their vehicles hit Chinese-made anti-tank mines laid by the South Sudan Liberation Army, a constellation of militias who say they are battling a corrupt government in Juba.
Juba accuses Khartoum of funding, arming, providing a rear base and facilitating weapons transfers to the rebels, rendering the SSLA a proxy militia -- charges Sudan's government denies.
"The plans of the militia and those who support them are to paralyze life here and close the road," Deng said.
Analysts say there is little risk the dispute could become an all-out war because of the interest of both nations in the continued flow of crude. It's also unlikely that Sudan's army would launch a bid to snatch an oil field.
"Sudan will be reluctant to simply invade - it would isolate them from their oil partners, and even implicate the companies involved in internationally sanctioned crimes like pillage should they continue to operate (the oil wells)," said Dana Wilkins, Sudan researcher from campaign group Global Witness.
For now, traders, travelers and donkey-drawn carts seem determined to continue to bump along Unity state's rust-colored dirt roads, eking out a living despite the risks.
(Additional reporting by Alexander Dziadosz; Editing by Sonya Hepinstall)