UPDATE 2-South Sudan says recaptures oil-producing state from rebels

Fri Jan 10, 2014 11:10pm IST

* South Sudan says recaptures Bentiu, in Unity state

* World's youngest state risks slide into civil war

* U.S. weighs targeted sanctions against S. Sudan - sources (Adds Ban Ki-moon urges Kiir to free detainees)

By Carl Odera

JUBA, Jan 10 (Reuters) - South Sudan's army said it regained a rebel-held northern town on Friday, giving the government control of a region where oil production had been halted by fighting that has left the world's youngest nation close to civil war.

Forces loyal to President Salva Kiir recaptured Bentiu, the capital of Unity state, in early afternoon, army spokesman Philip Aguer told Reuters. "When you control Bentiu you control all the oilfields in Unity state," he said.

More than three weeks of fighting between government forces and rebels loyal to former vice president Riek Machar have killed more than 1,000 people and driven 230,000 from their homes and forced a cut in oil production.

Rebels made a "tactical withdrawal to avoid civilian casualties" in Bentiu, according to Lul Ruai Koang, a military spokesman for the rebel delegation attending stuttering peace talks in Ethiopia.

He said rebels continued to hold the surrounding countryside. He said the government forces had been backed by fighters from the Justice and Equality Movement, a rebel group from Sudan's Darfur province.

South Sudan's rebels also accused neighbouring Uganda of aiding Kiir by launching air strikes against their positions, something Kampala denies. Ugandan troops already patrol Juba's airport and guard the presidential palace, at Kiir's request.

South Sudan's oil production fell by 45,000 barrels per day to 200,000 bpd after oilfields in Unity state were shut down due to fighting. Upper Nile state is still pumping about 200,000 bpd, the government says.

U.S. WEIGHS SANCTIONS

Separately, sources briefed on U.S. discussions said Washington was weighing targeted sanctions against South Sudan due to its leaders' failure to end the crisis. Such sanctions focus on individuals, entities or sectors in a country.

"It is a tool that has been discussed," one source told Reuters, on condition of anonymity.

The possibility of sanctions against a country Washington helped create in 2011 shows how frustrated President Barack Obama's administration has become with Kiir and Machar's rebel faction.

Washington on Thursday also cranked up the pressure for a deal, saying South Sudan risked losing hundreds of millions of dollars in U.S. aid if the two sides did not end the violence.

The fighting, often along ethnic lines, is the worst in South Sudan since it won independence from Sudan in 2011. The unrest threatens to destabilise fragile east Africa.

U.N. Secretary-General Ban Ki-moon urged Kiir to release all political detainees and called for "the two sides to negotiate in earnest."

And earlier on Friday, the United Nations in South Sudan accused both rebels and government forces of obstructing aid.

Rebels had looted warehouses, commandeered aid agency vehicles and ransacked property in both Bentiu and the town of Bor, the U.N. Mission in South Sudan (UNMISS) said.

Meanwhile, government authorities had hampered U.N. flights carrying supplies for peacekeepers and clinics and stopped some peacekeeper patrols, it said.

"These are clear violations of the agreement that regulates the United Nations' presence in South Sudan and is preventing UNMISS from implementing its mandate," mission chief Hilde Johnson said in a statement.

President Kiir's SPLA government forces have also been fighting to regain control of Bor, capital of the restive Jonglei state.

AIR STRIKES

In meetings in Ethiopia, the two camps are haggling over terms of a ceasefire. They were expected on Friday to submit their recommendations to a ceasefire proposal drafted by mediators.

Banks, markets and bars were open as normal in the capital, Juba, but food prices have jumped, petrol pumps are running dry and the South Sudanese pound is weakening on the black market.

While Uganda has publicly denied air strikes, two Ugandan military sources with knowledge of the operations said they were aware of airborne attacks, adding that 1,500-1,800 Ugandan troops were inside South Sudan.

"In Bor our boys have been backing up the SPLA in the latest push to retake it," one Ugandan officer told Reuters. "Yesterday (Thursday) our MiGs conducted two bombings there."

Ugandan President Yoweri Museveni, who has said east African nations would have to "defeat" Machar if he rejected a ceasefire, has come under fire at home for deploying troops across the border without seeking parliament's permission. (Additional reporting by Aaron Maasho in Addis Ababa, Richard Lough in Nairobi, Louis Charbonneau and Michelle Nichols at the United Nations, Warren Strobel in Washington; Writing by Richard Lough and James Macharia; Editing by Alister Doyle)

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