Sanctions to Cut North Korea Fuel Imports as Crude Keeps Flowing

Sep 12, 2017 3:46 am ET

(Bloomberg) -- New United Nations sanctions on North Korea will cut imports of fuels such as gasoline and diesel by almost 56 percent while capping shipments of crude at current levels, according to the U.S.

The oil supply restrictions, which were less than the full embargo sought by the U.S., was the main element of Monday’s resolution. The UN Security Council also banned textile exports and gave countries the ability to freeze assets of cargo ships whose operators don’t agree to inspections on the high seas.

To read more about the new UN sanctions on North Korea, click here.

The U.S. also provided a fresh estimate for the isolated nation’s total oil and product imports -- about 8.5 million barrels annually, or a little more than 23,000 barrels a day -- a figure that’s been difficult to determine given the paucity of official or consistent trade and consumption data. According to the U.S. and UN, details of the resolution include:

  • Starting Oct. 1, a cap on the sale of petroleum products, including gasoline, diesel and fuel oil, that’s equivalent to 2 million barrels annually.
    • The country’s 8.5 million barrels of overseas supply consists of 4 million barrels of crude and 4.5 million barrels of refined products.
  • Banning crude supply to North Korea beyond what China provides through the Dandong-Sinuiju pipeline.
  • In order the prevent North Korea from obtaining substitutes for refined products, the resolution also bans the sale of condensates -- a low-density form of crude oil typically produced alongside natural gas -- and natural gas. The U.S. and UN documents switch between referring to natural gas and natural gas liquids, which includes fuels like propane and butane.

Varying Estimates

It’s unclear what concrete impact the sanctions will have on fuel supplies to North Korea given that accurate figures are difficult to determine. The new restrictions will result in a 30 percent drop in overall oil supply to North Korea, according to the U.S.

“These are areas where experts disagree, and there’s a big difference in the potential impact based on how much the North Korean regime relies upon outside sources based on those estimates,” Paul Musgrave, a professor at the University of Massachusetts Amherst, said by email.

For instance, the U.S. Energy Information Administration said in May that demand estimated using reported trade information totaled about 15,000 barrels a day. That’s about 5.48 million barrels a year. Bill Brown, a adjunct professor at Georgetown University, estimated the figure at 6.6 million barrels annually (about 18,000 barrels a day), though cautioned that’s based on incomplete or unclear data.

‘Significant Reduction’

North Korea’s daily consumption is tiny, regardless of the difference in estimates. It compares with demand last year of almost 2.6 million barrels a day in South Korea, 12.5 million in China and 19.6 million in the U.S., according to the EIA.

The Nautilus Institute, a California-based researcher that has focused on North Korea issues, sees the total 8.5 million barrel figure from the U.S. in line with its latest estimates.

“The sanctions do probably represent a significant reduction in oil products imports and use, relative to current levels,” David von Hippel, a senior associate at Nautilus Institute said in an email.

Transportation and the military are the major outlets for North Korea’s fuel supply, Nautilus said in a report last week. They’re also used in the industrial sectors, including the production of cement and minerals, and some diesel fuel goes into the agriculture sector.

Non-Military Impact

Even if China reduces oil exports to North Korea by 50 percent, Pyongyang could cut non-military use of oil, having no immediate impact on its nuclear program, Nautilus said.

“The immediate primary impacts of responses to oil and oil products cut-offs will be on welfare,” the report said. “People will be forced to walk or not move at all, and to push buses instead of riding in them. There will be less light in households due to less kerosene, and less on-site power generation.”

The U.S. mission to the UN didn’t respond to email and phone messages outside of its normal business hours seeking further information and clarification on its North Korean oil data. The UN also didn’t respond to email and phone messages.

--With assistance from Jing Yang

©2017 Bloomberg L.P.