The oil conflict between Sudan and newly independent South Sudan is flaring dangerously after the infant state accused the Khartoum regime of building an illegal pipeline into its oilfield and the north declared a general mobilization.

There have been frequent clashes between the Christian and animist south and the northern Muslim Arab regime in Khartoum, which fought a three-decade war up to 2005, since South Sudan became independent last July.

Fighting has escalated in recent weeks, with battles in the border oil states March 26-27 that were described as the heaviest along the 1,125-mile border since the breakup. The south claimed Sudan's air force carried out bombing raids on Unity state. Khartoum denied that.

South Sudan President Salva Kiir claimed his troops repulsed a northern assault and then took over the disputed Heglig oil fields on the border. Khartoum denies that.

Sudan President Omar Bashir called off a planned April 3 meeting with Kiir in Juba, the south's capital.

On April 8, South Sudan accused Khartoum of trying to build a pipeline into the southern oil field in Unity State "to steal our oil."

On Wednesday, the Sudanese Parliament declared a general mobilization and withdrew from negotiations with the south brokered by the African Union.

Trouble has been brewing since the south's secession under a 2005 peace agreement that ended the civil war in which 2 million people died, many from famine.

The breakup meant that Khartoum lost most of Sudan's oil fields, which are in the south. It's been seeking to take control of the main fields, which lie along the undemarcated border.

The south's key problem is that the only export pipelines run through the north to the Red Sea coast. It refuses to pay the $32-$36 per barrel free Khartoum demands, and the regime seized large amounts of oil several weeks ago for "unpaid fees."

The South retaliated by shutting down production. Both states are now losing heavily but neither shows signs of compromise and a new war now looms.

All-out war would be ruinous for both states and trigger a new wave of instability across East Africa just as the region seems to be entering an era of prosperity amid major oil and natural gas discoveries from Somalia south to Mozambique.

"Over the medium term, a sustained shutdown of oil output would have dramatic consequences for the domestic stability of South Sudan and could lead to a collapse of central authority, said analyst Jean-Baptiste Gallopin of security analysts Control Risks.

With Kiir's government of former rebels of the Sudan People's Liberation Army dependent on oil exports for 98 percent of its revenue, that prospect could be perilously close.

Around one-third of the new state's population of 8.3 million is expected to need U.N. food assistance to fend off famine this year. And 500,000 southerners could be expelled from the north to add to the crisis.

Oil is the economic lifeblood of both states. Before the July 2011 breakup, Sudan as a whole had oil reserves estimated at 5 billion barrels. When the south seceded, it took possession of some 75 percent of the productive oil fields.

"The two major producing areas … are expected to decline quite rapidly in production by the end of this decade, so exploration efforts need to be stepped up," says Peter Kiernan, lead energy analyst with the Economist Intelligence Unit in London.

Exploration is vital. The south produces an estimated 350,000 barrels per day and the north 150,000 bpd.

The south, its forces outnumbered and outgunned by the north, will find it difficult to wage a protracted war as it exhausts its limited funds.

Kiir hopes to borrow money using oil reserves as collateral but that's not likely to work. Juba will ultimately have to depend on outside funding and aid to stay solvent while production is shut down.

"Much … will depend on the United States and other Western countries," the U.S. global security consultancy Stratfor noted.

The Khartoum regime isn't in good financial shape either.

China is Sudan's major oil customer and is seen as a possible peacemaker.

A lot hinges on whether Beijing, trusted by both sides, is prepared to mediate to protect its oil supplies from South Sudan.