China Limit its Oil Exports to North Korea

China is imposing new limits on trade with North Korea after the isolated country’s latest nuclear test. China announced today that it would limit its oil exports to North Korea, beginning in October 1 to comply with U.N. sanctions imposed over its nuclear and missile development. North Korea has abundant coal but depends almost entirely on imports for oil and gas. China also will ban textile imports from the North Korea. China would ban exports of liquefied natural gas to the North Korea immediately as well.

Under the UN resolution, China will still be able to export a maximum of two million barrels of refined petroleum to North Korea annually, effective Jan. 1. North Korea depends on China for almost all its oil and gas but estimates of its consumption are low, leaving it unclear how Beijing’s new limit will affect them. The restrictions do not apply to crude oil, which makes up the biggest share of energy exports to the North Korea.

Textiles are believed to be North Korea’s second-biggest export and biggest source of foreign revenue after coal and iron ore in 2016, totaling $752 million, according to data from the Korea Trade-Investment Promotion Agency (KOTRA). Total exports from North Korea in 2016 rose 4.6 percent to $2.82 billion. Clothing has often partially been made in North Korea, but finished in China. China is North Korea’s most important trading partner, and one of its only sources of hard currency.

The North Korean regime is believed to use a complex network of front companies to do business in China and other countries to dodge sanctions. China accounts for about 90% of North Korea’s foreign trade, with money and goods flowing back and forth across a land border that runs for 880 miles. President Trump on Thursday gave the Treasury Department more power than ever to punish people and businesses who trade with North Korea. The big questions are how and when it will be used.

Stephan Haggard, Professor of Korea-Pacific Studies at the University of California, San Diego, wrote:

We are about to run the most significant experiment in the use of secondary sanctions on North Korea to date, and perhaps the most significant such experiment with respect to any country ever. Every single big bank in the world has sent or will be sending a memo to their compliance teams. Those teams in turn will be scrambling to figure out if they have any North Korea risk.

The United States and South Korea are technically still at war with North Korea because the 1950-53 Korean conflict ended with a truce and not a peace treaty. The North accuses the United States, which has 28,500 troops in South Korea, of planning to invade and regularly threatens to destroy it and its Asian allies.