North Korea fuel prices surge after China cuts oil sales

Employees spray water to cool down oil tanks at a PetroChina oil storage facility in Suijing, Sichuan Province on Aug 13, 2010.
Employees spray water to cool down oil tanks at a PetroChina oil storage facility in Suijing, Sichuan Province on Aug 13, 2010.PHOTO: REUTERS

SEOUL (REUTERS) - Petrol and diesel prices surged in North Korea in the weeks after a Chinese state oil company suspended fuel sales to the reclusive state, according to data reviewed by Reuters and an interview with a North Korean defector.

China National Petroleum Corp (CNPC), a state-controlled company, halted diesel and petrol sales to North Korea "over the last month or two", amid international pressure on Pyongyang to curb its nuclear and missile programmes, according to a Reuters report on June 28.

Scrutiny of China's commercial ties with its isolated neighbour intensified further following North Korea's first test of an intercontinental ballistic missile two weeks ago.

The price of petrol sold by private dealers in Pyongyang and the northern border cities of Sinuiju and Hyesan jumped to US$2.18 per kg (S$4 per litre) as of July 5, up 50 per cent from US$1.46 per kg on June 21, according to Reuters analysis of data collected by the Daily NK website.

Daily NK is run by North Korean defectors who collect prices via phone calls with fuel traders in the North.

Kang Mi-jin, a defector who speaks regularly to market sources inside North Korea and reports commodity prices for Daily NK, said the price spikes in recent weeks were caused initially by the rumours - later confirmed - that China was restricting the flow of oil to North Korea.

North Korea gets most of its fuel from China, with some coming from Russia.

A prolonged cut by China would threaten critical supplies of petrol and diesel and force North Korea to find alternatives sources of refined fuel products.

"After North Korea's frequent missile tests including its very first ICBM test, the international community has vowed to tighten sanctions and China simply cannot exclude itself from the recent movement, although it probably does not want to indefinitely cut off fuel sales to the North," Kang said.

Although petrol prices eased to US$2.05 per kg by July 12, they are still more than double from the beginning of the year, when they were averaging just under US$1 per kg, the data shows.

Diesel prices rose to US$1.45 per kg as of July 12, up 20 per cent from three weeks ago.

Oil products are sold by weight in North Korea. Prices stabilised after the sharp spikes through the first week of July, likely because North Korea encouraged fuel smuggling across its border with China, Kang said.

Last year, China shipped to North Korea more than 96,000 tonnes of petrol and nearly 45,000 tonnes of diesel, worth a combined US$64 million.

Most of that was sold by CNPC, which grew to dominate China's energy trade with Pyongyang over the past two decades.

CNPC declined to comment on Monday (July 17) when asked by Reuters if fuel sales to North Korea had resumed.

The government is likely North Korea's largest user of fuel products, but most petrol and diesel bought by ordinary citizens comes from private dealers and smugglers, experts say.

Primary users of fuel products in North Korea include fishermen, farmers, truckers and the military.