US President Donald Trump's designation of North Korea as a state sponsor of terror could give the Pyongyang regime an excuse to conduct weapons tests and blame the US.
Analysts expect a strong response from Pyongyang before the year is out.
Sanction hawks say the decision was overdue, and does not necessarily come at the cost of diplomatic efforts to find a way out of the stand-off with nuclear-armed North Korea.
The message to North Korean leader Kim Jong Un was "this is only going to get worse until you're ready to come and talk", US Secretary of State Rex Tillerson told reporters on Monday (Oct 20).
North Korea was previously designated as a state sponsor of terror by President George H.W. Bush in 1988. His son, President George W. Bush, removed it from the list in 2008.
"G.W. Bush's removal of North Korea from the list in 2008 was predicated on Pyongyang's illusory promise of denuclearisation and compliance with inspection requirements," Dr Lee Sung-Yoon, Professor of Korean Studies at the Fletcher School of Law and Diplomacy, told The Straits Times in an email.
"Needless to say, nine years of non-designation brought no compliance and instead full-fledged nuclear and missile armament," Dr Lee said.
With the re-listing, the world will think twice before engaging in business transactions with North Korea, not out of fear of symbolic opprobrium, but real-life financial costs, Dr Lee wrote.
It opens banks to retaliatory action from the US Treasury Department if they process US dollar transactions on behalf of any North Korean entity. In 2015, BNP Paribas was fined US$8.9 billion (S$12.1 billion) for violating sanctions against Sudan, Cuba and Iran from 2004 to 2012. Few banks will want to flirt with that risk over North Korea.
States that continue to import small arms and military equipment from North Korea will be ineligible to receive US foreign aid. US victims of North Korea - like Otto Warmbier, the American student imprisoned in North Korea and returned to the US earlier this year in a coma, eventually dying - could sue North Korea in US courts.
The relisting also puts more pressure on South Korea not to funnel funds into Pyongyang's coffers through inter-Korean projects, Dr Lee wrote.
Joshua Stanton, a Washington-based attorney and expert on sanctions on North Korea, Tweeted: "It's unfortunate that some of (President Donald) Trump's policies and how he communicates cloud our judgement when he makes the right call. Today, he made the right call."
"The re-listing adds an extra powerful layer of deterrence," Dr Lee wrote. "This measure has pragmatic implications, and is long overdue."
Anthony Ruggiero, Senior Fellow at the Foundation for Defence of Democracies, said there was no reason to delay the decision, Tweeting that "the only surprise is it took this long to re-list North Korea".