With recent rocket tests being conducted by North Korea (the Democratic People’s Republic of Korea – DPRK), it appears the regime of Kim Jung Un is pushing the bounds of sanctions and effectiveness of the negotiation process with the international community, including bilaterally with President Trump. Not only has it tested missiles (demonstrating a potential regional threat to South Korea, which also houses nearly 30,000 U.S. troops, Japan and the U.S.), it seems as if Kim Jung Un is disregarding the international community as a whole.
The sanctions specifically have placed restrictions on: exports to North Korea (such as crude oil, condensates, natural gas and aviation fuel); imports from North Korea (such as metals, all arms and other manufacturing goods); financial and economic sectors (focusing on the banking system, assets, including from individuals and joint ventures); and North Korean shipping vessels.
The United Nations as well as the United States, European Union, China, South Korea and Japan, have imposed a slew of economic sanctions on North Korea since 2006. Different sanctions measures have been designed to pressure North Korea, a country of 25 million people, to halt its nuclear weapons and missile programs in return for a lifting of the economic pressure. President Trump and Kim, leader since 2011, held two summits to discuss the sanctions and nuclear issues in June 2018 in Singapore and February 2019 in Hanoi, Vietnam. Neither summit resulted in a substantial resolution of the issues at hand. North Korea said negotiations will not resume unless the Trump administration adjusts its unilateral position for disarmament.
These restrictions have further weakened North Korea’s already struggling economy. Nevertheless, the intended effectiveness has not yielded the extensive impacts, as some countries and companies are not consistently enforcing the agreed terms.
Effects on Energy
Sanctions have hit the energy sector in the country particularly hard, providing a further obstacle to meet its needs. North Korea’s energy landscape was already in an unenviable state. Necessary quantities of fuels are further out of reach, the country hasn’t effectively tapped its own resources, much of its infrastructure is aging and unreliable and only 27 percent of its population has access to electricity, according to the International Energy Agency (IEA). Kim has been quoted saying increasing electricity access is a priority.
Currently North Korea relies on hydropower, coal and petroleum products for most of its energy needs. Its electricity mix is dominated by hydroelectric power at an estimated 76 percent and the balance is derived from coal and petroleum. Electricity derived from nuclear energy certainly does not appear to be available anytime in the near-term. Another avenue being explored is tidal energy. With development of technology, with assistance from international experts, North Korea’s coastal regions can be capable of harnessing the emerging power source. With the demand, biomass, waste, and solar energy have also grown in residential, military and rural applications to avoid unreliability and lack of access.
Sanctions cap refined petroleum exports to North Korea at 500 thousand barrels per year and crude oil imports are regulated to four million barrels per year. The nation imports nearly all of its oil and petroleum products from China.
To combat the choking off of international commodities, Kim is focused on energy sources that are not vulnerable to sanctions, which could also partially alleviate the nation’s economic struggles.
While past oil exploration has proven unfruitful, coal has been found to be plentiful – there is an estimated 661 million short tons as of 2015, according to the U.S. Energy Information Agency (EIA). Coal was an economic driver and source of revenue through exports and domestic uses. Exports shipments to China dominated its customer base. In fact, in 2016 China imported 22 million tonnes valued at more than one billion USD. However, now its legal exports have been limited.
Harnessing the domestic supply, Kim Jung Un envisions ramping up coal-based synthetic fuels to utilize as a substitute to oil and petroleum products. Direct applications would include: power, industry, heating, fertilizer and in vehicles. With the positives, come the negatives, such as low efficiency and higher cost. However, with its reduced coal exports, there will be more supply available for domestic uses. Yet estimates show not all primary imports affected by the sanctions will be able to be replaced by the synthetic substitute.
With the prominence of the military, providing a reliable energy supply has been cited by commentators as a motivating factor for the forward-thinking actions.
Avoiding Sanctions
North Korea has become crafty discovering methods to partially work around the restrictive sanctions, including a rising amount of ship-to-ship oil transfers and related products, continuing coal exports, defrauding banks and commodity traders, and selling various arms, according to a U.N. report. The U.S. seized a North Korean cargo ship over accusations it was used for coal shipments in violation of sanctions. North Korean Ambassador to the U.N., Kim Song, rebutted the U.S. saying it was violating international law. The report continues that North Korea has taken advantage of operating in international waters, using vessels flagged from countries that do not monitor vessels sailing under their registries, or “flags of convenience”. It is speculated that China may be one of the actors.
North Korea also recently hosted what is estimated to have been the largest international trade conference in its history, attended by more than 450 companies representing multiple industries. The turnout certainly gives the appearance companies want to pursue potential trade despite broader restrictions. Parties were represented from Russia, Pakistan, Poland, China, among others.
China has been viewed as integral for effective sanctions due to its bilateral relationship, accounting for over 90 percent of its trade, shared geography and overall influence. North Korea is important for China geopolitically, too. Chinese President Xi Jingping wants stability in its region and to be a stakeholder to stave off Kim’s regime from potentially collapsing, which could lead to thousands of refugees, less international stature and close the distance of U.S. troops in South Korea. This is not to say China is hostile to South Korea; opposite in fact. South Korea is one of China’s most important trading partners with two-way trade tallying well over $100 billion.
Kim has also traveled to Russia to cultivate a relationship with Vladimir Putin to seek support in negotiations and improving its economy. Russia does not fully support sanctions but does not support North Korea’s development of nuclear weapons either.
Working Together
South Korea stated it will provide food and medical supplies to North Korea through the U.N. with the country suffering through severe drought. It also said it may consider broader food aid. South Korean President Moon Jae-in has voiced optimism that the actions can provide a path to rekindle talks with North Korea. Some in North Korea have met the news with skepticism, claiming South Korea is avoiding fundamental issues with a PR stunt.
Outside of humanitarian engagement, South Korean experts have proposed an idea of revamping and providing technical know-how to assist the North’s complications with electricity generation and distribution. North Korea’s electricity grid and generation would cost in magnitude of billions of U.S. dollars to bring up to today’s standards, especially reliability and efficiency. A substantial amount of energy infrastructure is decades old and not well maintained.
Perhaps if a global agreement in regard to weapons and sanctions is reached, North and South Korea can build on that momentum and continue in line with the Panmunjom Declaration, from April 2017, when the two governments agreed to work together to end its decades long conflict.
