By Alexander Dziadosz and Khalid Abdelaziz
KHARTOUM (Reuters) - South Sudan's shutdown of its crude production in a damaging row with Sudan over oil payments appears to have backfired and put pressure on Juba to soften its bargaining stance, one of Khartoum's negotiators said on Sunday.
Any deal still hinges on whether the two countries can address alleged support for rebels on both sides of the border, but southern officials have a growing incentive to tackle the obstacle, Sabir Hassan told Reuters in an interview.
"In the past, the pressure was all on the north," he said. "Now both sides are under pressure, so both will be willing to find a way out."
South Sudan's chief negotiator Pagan Amum said on Saturday his country hoped to end the row within "a month or two", a time frame Hassan said could be realistic if southern officials were serious about reaching a settlement.
South Sudan split from Sudan in July under a 2005 peace deal that ended decades of civil war, but the two have yet to resolve a range of partition-related issues.
Although the south took about three quarters of Sudan's oil output, it still needs to use pipelines, a Red Sea terminal and other facilities in Sudan to export crude. The two nations have wrangled over how much it should pay to do this.
In January, South Sudan halted its production of about 350,000 barrels per day in protest after Khartoum started taking some oil as "dues in kind" to make up for what it said were fees Juba had failed to pay since independence.
Hassan said the shutdown had put the squeeze on South Sudan to make a deal because oil provides 98 percent of state revenue, in turn vital to an economy based mostly on government salaries.
"When they shut down the wells, they stopped the source of their revenues. So they came under pressure," he said, adding that southern negotiators had later become more conciliatory.
Sudan has also suffered from the disruption. Oil contributed about three quarters of Sudan's foreign exchange and half of state revenue before the south seceded, said Hassan, a former central bank governor who co-chairs Khartoum's economic negotiations team.
At least in public, the two sides are still far apart.
Among other ideas, Khartoum has proposed that South Sudan pay a mix of fees amounting to about $36 per barrel, of which about $6 would be transit fees. The rest would cover transport and the use of a marine terminal and processing facilities.
Southern officials said last week they were willing to pay $2.6 billion to help plug Sudan's budget deficit and would lobby for debt relief. Juba has proposed a transit fee of about $1 per barrel.
Hassan said bridging the gap would be relatively easy once security issues, especially rebel activity on both sides of the long and poorly-drawn border, had been dealt with.
"The key to all this is security," he said. "Neither of the two countries should support rebels in the other country ... oil comes second, actually."
To reach a deal, Juba must agree to stop supporting rebels in Sudan's South Kordofan and Blue Nile border states, he said.
The two regions are home to tens of thousands of fighters who sided with the south during the civil war but were left in the north after partition. Fighting broke out again last year, with both sides blaming the other for provoking the conflict.
Resolving the dispute means South Sudan will have to break its "historical tie" with the rebels, Hassan said. "If they succeed in that, if they do have the political will and they succeed, then I think things might work out."
Sudan's President Omar al-Bashir is set to meet his southern counterpart Salva Kiir in Juba on April 3 to discuss issues including oil and the conflict in the two border states.
(Writing by Alexander Dziadosz; Editing by Alistair Lyon)