North Korean fuel prices drop, suggesting that UN sanctions being undermined

A file photo taken on July 21, 2017, shows a petrol pump attendant filling up a taxi with petrol at a fuel station in Pyongyang.
A file photo taken on July 21, 2017, shows a petrol pump attendant filling up a taxi with petrol at a fuel station in Pyongyang.PHOTO: AFP

SEOUL (REUTERS) - Petrol prices in North Korea have nearly halved since late March, market data analysed by Reuters shows, adding weight to suspicions that fuel is finding its way into the isolated economy from China and elsewhere despite United Nations sanctions.

The UN Security Council passed a resolution in December to ban nearly 90 per cent of refined petroleum exports to North Korea over its nuclear and missile programmes.

But as North Korean leader Kim Jong Un has moved to improve relations with the United States, China and South Korea, concerns have grown that the policy of "maximum pressure" through sanctions and isolation, is losing steam.

Petrol was sold by private dealers in the capital Pyongyang at about US$1.24 (S$1.69) per kilogram (kg) as of Tuesday (July 24), down 33 per cent from US$1.86 per kg on June 5 and 44 per cent from this year's peak of US$2.22 per kg on March 27, according to Reuters analysis of data compiled by the Daily NK website.

Diesel prices are at US$0.85 per kg, down about 17 per cent from March.

The website is run by North Korean defectors who collect prices via phone calls with traders in the North.

"My assessment is that there was a greater inflow (of fuel supplies) from abroad, especially China since Kim's trips there," said Mr Kang Mi-jin, who works at Daily NK and speaks regularly to sources inside North Korea.

Mr Kim first visited China to meet President Xi Jinping in March, and they held two more summits, in May and June.

Last week, US Secretary of State Mike Pompeo accused North Korea of "illegally smuggling petroleum products into the country at a level that far exceeds quotas" established by the United Nations.

"Illegal ship-to-ship transfers are the most prominent means by which this is happening. Every UN member state must step up enforcement," he wrote on Twitter, without naming any country.

North Korea gets most of its fuel from China, its biggest trading partner, and some from Russia. Washington and Seoul officials have said the North imports some 4.5 million barrels of refined petroleum products and two million barrels of crude oil each year.

Last year's UN resolution capped refined imports at 500,000 barrels a year.

Chinese Foreign Ministry spokesman Geng Shuang told reporters on Tuesday that China has consistently and strictly abided by UN Security Council resolutions on North Korea.

China had only exported 7,432 tonnes of refined oil products to North Korea in the first six months of this year, out of a total of 60,000 tonnes a year stipulated by the UN sanctions.

China had reported its exports to the Security Council's sanctions committee in a timely manner, Mr Geng added.

"The relevant situation is totally open and transparent," he said, without elaborating.

Overall, China's trade with North Korea in the first half of this year tumbled 56 per cent on the back of the tightening sanctions, customs data showed on Monday.

North Korean rice prices have also been stable since a spike last September, when the UN Security Council imposed new sanctions. Rice has hovered around US$0.62 per kg throughout this year.

Stable fuel and rice prices suggest no immediate signs of major suffering in North Korea despite South Korea's recent estimates that the impoverished state's economy contracted at its sharpest rate in two decades last year.

South Korea's central bank said North Korea's gross domestic product shrank 3.5 per cent last year, marking the biggest decline since 1997, citing international sanctions and drought.

While other defectors reported some suffering in remote rural regions, Mr Kang said fuel demand has been steady in North Korea, and overall living conditions have improved in line with a booming unofficial market economy.

The unofficial markets, known as jangmadang, have grown to account for about 60 per cent of the economy, according to the Institute for Korean Integration of Society.

"I've seen signs the economy was slowly improving over the past five years, and in last year things are still developing but perhaps not as fast as before," a Western consultant who makes regular trips to North Korea told Reuters.

Mr Kim, who vowed not to let the people "tighten their belt again" in his first-ever public speech in 2012, announced in April a shift in focus from nuclear programmes to the economy. Analysts say that will be difficult while sanctions remain in place.

"I don't think there is an outcry in the markets now, but there could be one towards the end of this year," said Dr Kim Byung-yeon, a North Korea economy specialist at the Seoul National University.