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Policy Study
Analysis of North Korea’s Oil Trade and Policy Implications

December 31, 2018

  • Author KIM. Kyoochul
  • Series No. Policy Study 2018-10
  • Language Korean
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Policy Study
Analysis of North Korea’s Oil Trade and Policy Implications

December 31, 2018

PDF
This paper examines the details of North Korea’s oil import, consumption, distribution and price-setting mechanism. Firstly, data from international organizations, Korean statistical agencies and major countries trading with North Korea were collected to reestablish long-term time series data on North Korea's oil imports and reverify them by year. Until the late 1980s, North Korea imported 1.8-3 million tons of crude oil from China, the Soviet Union and Iran annually. But, with the collapse of the Soviet Union in the 1990s and decline/suspension of oil imports from Iran and China, it is presumed that the North's oil imports have remained fixed at around 500,000 tons a year since the late 1990s. Imports of oil products began to rise in the 1990s, but most of the supplies were from heavy oil through KEDO or six-party talks. The supply conditions of oil products has worsened, and since the 2010s the official import volume has been around 200,000 to 300,000 tons a year. North Korea is also known for introducing oil products through unofficial channels such as smuggling. The amount of smuggled oil products, which was revealed through various official documents, is more than the official size of imports.

The crude oil trade between North Korea and China and the oil product trade have different characteristics. Crude oil has been traded in equal quantities each year, and its price is different from that of international markets. Also, it is traded through pipelines and a refining facility was built with Chinese aid. Therefore, the oil deal between the two countries appears to be in the form of state-to-state transaction or aid. Refined oil trade is conducted through ships and is imported to various regions. It is believed that oil products have been traded on a commercial basis as export prices of refined oil are also linked to international market prices.

Before 1990, North Korea had an energy overspending structure, but with difficulties in importing oil, efforts have continued to improve the efficiency of oil consumption in related industries and to develop technologies to replace oil. Also, the demand for transportation fuel seems to have continued to rise since the 2000s when marketplaces (Jangmadang) became active. Some of the supply distributed to the military sector is being leaked to the private sector, indicating that it is difficult to clearly distinguish the oil consumption in the private and military sectors.

An analysis of the prices of gasoline and diesel in North Korea's marketplaces through an econometric model showed that the UN Security Council's sanctions on North Korea in 2017 had a short-term impact on market prices. This is interpreted to be a reflection of the North Koreans' sentiment that the sanctions limited the oil supply. However, as the situation on the Korean Peninsula relatively stabilized in 2018, North Korea's oil product prices are also showing signs of stability.

Lastly, this paper discusses the possibility of cooperation projects in oil product trade between South and North Korea. Considering South Korea's ability to refine crude oil, export prices of petroleum products, the size of North Korea's imports of petroleum products and the unit price of imports to China, inter-Korean cooperation in oil products trade appears to be more economical than other economic cooperation projects.
 
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The Department of Macroeconomics is conducting researches on the macro economy and macroeconomic policy, particularly focusing on suggesting the analysis of macroeconomic trends and current status of the economy at home and abroad, the economic forecast, and the policy direction of the macro economy. The Department is also in charge of establishing, sustaining and maintaining various econometric models, based on which it analyses policy effects and develops a long-term economic forecast.

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