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Oil will keep flowing to North Korea, but nuclear-armed nation certain to feel pinch

AP, Reuters, Kyodo, AFP-JIJI

North Korea will be feeling the pain of new United Nations sanctions targeting some of its biggest remaining foreign revenue streams. But the U.N. Security Council eased off the biggest target of all: the oil the North needs to stay alive and to fuel its million-man military.

Though the United States had proposed a complete ban, the sanctions by the Security Council cap Pyongyang’s annual imports of crude oil at the same level they have been for the past 12 months: an estimated 4 million barrels. Exports of North Korean textiles are prohibited, and other nations are barred from authorizing new work permits for North Korean workers, putting a squeeze on two key sources of hard currency.

The measures were approved unanimously Monday.

The measures to punish Pyongyang for its Sept. 3 nuclear test also ban the country from importing natural gas liquids and condensates, and limit the import of refined petroleum products to 2 million barrels a year.

That could be a significant restriction.

According to Chinese customs data, North Korea imports nearly 2.2 million barrels a year in petroleum products, but some U.S. officials believe the true number is much higher at about 4.5 million barrels annually. So the 2 million barrel cap could be cutting existing imports 10 percent, or slashing them by more than half.

But how much impact the oil and fuel component of the sanctions will actually have — even if strictly enforced, which is always a concern — is an open question.

David von Hippel, an energy expert with the Nautilus Institute think tank who has done extensive research on North Korea, said he doubts that oil sanctions will hit the regime very hard.

“The textile sanctions actually might have more impact, as they are probably a good source of value-added income — value added by people you don’t have to pay much — for the regime,” he said. “But I’m not sure that they will really have much effect on the nuclear weapons and missile programs, given the priority that those initiatives must have for the DPRK leadership.”

DPRK is short for North Korea’s official name, the Democratic People’s Republic of Korea.

Von Hippel co-authored a report for Nautilus earlier this month that found even a major reduction in Chinese oil exports to North Korea would likely have only a muted impact on military activities because Pyongyang can safely be assumed to have significant stockpiles. The report estimated North Korea may have enough in reserve to supply its military for a year of normal operations or a month at a wartime pace.

There have been signs, including reduced supply and skyrocketing prices, that North Korea has already started diverting oil products away from gas stations and other consumer outlets.

Rajiv Biswas, Asia Pacific chief economist for IHS Markit, also said he expects that Pyongyang can weather the import reduction.

“The new U.N. sanctions on oil exports to North Korea are relatively moderate in scope compared to the original U.S. proposal regarding oil exports, and would be unlikely to have much impact on the operations of the North Korean military,” he said.

Biswas noted, however, that the situation with China remains both crucial and complicated.

Chinese gasoline exports to the North fell sharply — to just 120 tons in July, compared with 8,262 tons in June — following a decision by China’s state-owned oil company, China National Petroleum Corporation, to cut sales due to concerns that North Korea is too high a credit risk. At the same time, however, Chinese exports of diesel to North Korea increased to 1,162 tons in July from 367 tons a month before.

One metric ton is roughly equal to roughly seven barrels of crude oil.

“The North Korean regime is still getting some fuel supplies from China, which can keep its most essential operations functioning,” he said.

For sure, the new measures will cause Pyongyang more economic pain. Textiles are one of North Korea’s major exports, with a total export value estimated at $750 million in 2016, and the tens of thousands of North Koreans working overseas send a significant portion of their earnings home to the regime. The measures also clamp down on joint ventures, which could stifle the North’s ability to trade and to acquire capital and know-how.

But what Washington failed to get was equally telling.

Along with settling for the compromise on oil, the U.S. unsuccessfully tried to get a travel ban and freezes on the assets of North Korean leader Kim Jong Un and Air Koryo, the North’s flagship airline. The U.S. proposed slashing projects employing North Korean workers abroad, but instead accepted sanctions aimed at gradually scaling them back.

The weakening of the sanctions reflects the long-standing rift between sanctions hawk Washington, and China and Russia, which advocate direct talks and more efforts to find a resolution through negotiations. The U.S. has rejected proposals from both countries that it stop joint military exercises with South Korea in exchange for a halt to North Korea’s nuclear and missile tests.

Both Beijing and Moscow had strong words for Washington.

China’s U.N. ambassador urged the council to adopt the freeze-for-freeze proposal and urged the U.S. to pledge not to seek regime change or North Korea’s collapse. Russia’s envoy said Washington’s unwillingness to have U.N. Secretary-General Antonio Guterres try to resolve the dispute “gives rise to very serious questions in our minds.”

Major U.S. allies in Asia, however, welcomed the Security Council’s unanimous vote to step up sanctions on the North.

Japan and South Korea said after the passage of the U.S.-drafted resolution that they were prepared to apply more pressure if Pyongyang refused to end its aggressive development of nuclear weapons and ballistic missiles.

Prime Minister Shinzo Abe on Tuesday praised the new sanctions resolution, saying that it is important to change North Korea’s policy by imposing a higher level of pressure on the country than ever before.

“I highly appreciate the fact that this strong resolution, which applies markedly stringent sanctions measures, was unanimously and rapidly adopted,” Abe said in a statement released shortly after Monday’s vote.

“This has made clear the will of the international community that we must strengthen pressure to a new level and make North Korea change its policies,” he added.

South Korea’s presidential Blue House said the same day that the only way for Pyongyang to end diplomatic isolation and become free of economic pressure was to end it nuclear program and resume dialogue.

“North Korea needs to realize that a reckless challenge against international peace will only bring about even stronger international sanctions against it,” the Blue House said.

Monday’s decision was the ninth sanctions resolution unanimously adopted by the 15-member Security Council since 2006 over North Korea’s ballistic missile and nuclear programs.

“We don’t take pleasure in further strengthening sanctions today. We are not looking for war,” U.S. Ambassador to the United Nations Nikki Haley told the council after the vote. “The North Korean regime has not yet passed the point of no return.”

“If it agrees to stop its nuclear program, it can reclaim its future … if North Korea continues its dangerous path, we will continue with further pressure,” said Haley, who credited a “strong relationship” between U.S. President Donald Trump and Chinese President Xi Jinping for the successful resolution negotiations.

“This resolution also puts an end to the regime making money from the 93,000 North Korean citizens it sends overseas to work and heavily taxes,” Haley said.

“This ban will eventually starve the regime of an additional $500 million or more in annual revenues,” she said.

Pyongyang warned the United States on Monday that it would pay a “due price” for spearheading efforts on U.N. sanctions over its nuclear program, which it said was part of “legitimate self-defensive measures.”

But analysts were skeptical about the ultimate impact of the punishment.

North Korea has made rapid progress in its nuclear and missile programs despite multiple sets of U.N. sanctions, and Go Myong-hyun at the Asan Institute of Policy Studies said the latest measures were “not enough to cause pain.”

Kim Hyun-wook, of Seoul’s Korea National Diplomatic Academy, agreed.

“The sanctions will only provide North Korea with an excuse for further provocations, such as an ICBM launch,” Kim said.