The Washington PostDemocracy Dies in Darkness

A ‘massive’ spike in oil smuggling has eased the economic pressure on North Korea

Farmers work their fields outside the Sungri Chemical Factory, an oil refinery in the Rason Special Economic Zone near North Korea's borders with Russia and China. (Eric Talmadge/AP)

Last spring, as the Trump administration was preparing for the historic U.S.-North Korea summit, a flotilla of strange-looking tanker ships steamed out of North Korea’s Nampo harbor on a series of clandestine missions off the Chinese coast.

Many of the vessels bore crude disguises, from fictitious names painted on their bows to fake hatches built of canvas and wood to give them the look of a cargo ship. Once at sea, they would rendezvous at night with a foreign tanker, toss hoses over the rail and fill their hulls with illicit oil before sailing home again.

Such fuel-smuggling runs are not uncommon in the Yellow Sea, yet the scale of activity over the spring and summer startled U.S. and East Asian intelligence officials who tracked the ships’ movements by satellite. By late August, spy agencies had counted 148 of these secret maritime transfers — for a total of between 800,000 and 1.4 million barrels of oil, gasoline and diesel — with the volume increasing in recent months as diplomacy with North Korea picked up steam.

A confidential U.N. report last month identified 40 vessels and 130 companies, many with Chinese or Russian ties, as contributing to a “massive” spike in smuggling that analysts say has helped stabilize North Korea’s economy just as U.S. diplomats are attempting to compel leader Kim Jong Un to give up his nuclear arsenal.

The flurry of activity is coinciding with what intelligence officials described as a steady erosion in sanctions enforcement in the region: With tensions on the Korean Peninsula cooling — and with a U.S.-China economic cold war looming — Russia and China have shown little enthusiasm for cracking down on the profiteers who are helping supply crucial fuel for Pyongyang’s vehicles and factories, U.S. officials and independent analysts said in interviews.

“Neither China nor Russia are doing what they should to stop this,” said a Trump administration official, who, like others, spoke on the condition of anonymity to discuss sensitive diplomacy. “The Russians are even trying to block our efforts to do something about” the spike in oil deliveries to North Korea.

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To Western diplomats, the tanker convoy partly explains the faltering progress of the Trump administration’s disarmament efforts with North Korea. Last fall, as part of a U.S.-led “maximum pressure” campaign against Kim’s government, the United Nations imposed sanctions that slashed the country’s imports of oil and gas while also banning it from selling coal, its main source of foreign revenue. The harsh measures are believed to have contributed to Kim’s decision to meet with President Trump at the June 12 summit in Singapore, where he promised to seek the “denuclearization” of the Korean Peninsula.

Yet since then, Kim has made no significant moves to destroy his nuclear stockpile or long-range missile fleet. South Korean President Moon Jae-in said Thursday that Kim wants to hold a second summit with Trump soon to “speed up the denuclearization process.”

But Kim has also demanded that Washington take “corresponding steps” in exchange for the North dismantling some nuclear sites. Among Kim’s goals is a declaration by South Korea and the United States that the Korean War is formally over.

This week, Secretary of State Mike Pompeo said the United States was “prepared to engage immediately” with North Korea to move dialogue ahead.

Whether he intends to disarm or not, Kim appears to have taken advantage of the diplomatic thaw to improves ties with neighbors and blunt the impact of the sanctions, weakening Washington’s hand in future negotiations, the diplomats and independent experts said. Any attempt at regaining the lost leverage may prove difficult, analysts said, as long as Kim avoids provoking his neighbors with new missile tests.

“It’s hard to see how you can put any steam back into the sanctions discussion, given the dynamics with the Russians and Chinese,” said Andrea Berger, a North Korea expert and senior researcher at the Middlebury Institute of International Studies. “Can you have a ‘Maximum Pressure, Version Two?’ I don’t think you can, at least not any time soon.”

No visible traces

With more than three decades of experience flouting international sanctions, North Korea has mastered using clever ruses to move illicit goods on the black market. Yet in recent months, Pyongyang has exceeded its own lofty standards.

In the past, the movements of North Korean ships could be tracked through harbor records and electronic signals, specifically data from transponders that automatically broadcast each ship’s unique identification code and destination as it navigates the seas. But the oil-smuggling ships that departed Nampo over the spring and summer left few visible traces; most never entered a foreign harbor, and most never turned on their transponders — except to mislead.

Lately there have been scores of such voyages, and nearly as many methods of concealment, a panel of U.N. sanctions experts concluded in a confidential report, based in part on intelligence assessments provided by the United States and other U.N. Security Council members.

“These transfers have increased in scope, scale and sophistication,” the report said. The release of the report, completed last month, has been delayed by a dispute between Moscow and Washington over Russian efforts to insert changes in the text, parts of which were shown to The Washington Post. Foreign Policy and the Wall Street Journal also obtained the report.

One example cited by the panel is the North Korean-flagged An San 1, a tanker with a long history of running petroleum between Chinese, Russian and North Korean ports. When it left Nampo in late June, it transmitted signals falsely identifying itself as a Sierra Leonean ship called Hope Sea — an upbeat moniker that was painted on top of the real name on the ship’s hull, the report said. On June 29, the vessel pulled alongside a small, unidentified foreign tanker in the South China Sea to take on a load of petroleum before heading back to its home port.

Similarly, in May, the ­coal-carrying ship Kal Ma broadcast a series of contradictory signals over several days. It changed its name twice, while also falsifying its identifying code and destination, the U.N. report said.

The document cited multiple attempts to change the physical appearance of ships. A sequence of surveillance photos shows crew members on one tanker removing what appears to be a false cargo hatch on the ship’s deck. Hoses can be seen running from the hatch’s opening and into the hold of a second tanker, which had anchored itself adjacent to the first.

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North Korea “has been disguising tankers as cargo ships through the construction of fake cargo hatches,” the report said.

Many of the foreign vessels that delivered the oil operated with equal stealth, the investigators found. Some were smaller vessels that could pass as fishing boats but were modified to carry oil or gas in their holds. Among the larger ships involved in smuggling, many simply opted to go dark, shutting off their transponders for hours or even days at a time.

In one such instance cited by the U.N. panel, the Russian-flagged vessel Patriot allegedly stopped transmitting a signal on April 10 before linking up with the Wan Heng 11, a North Korea-bound tanker that had been previously blacklisted for sanctions violations. The Russian ship later reported a change in its draft, an indication that it had discharged its cargo, the report said.

Nikki Haley, the U.S. ambassador to the United Nations, on Monday specifically cited the Patriot as an example of Russian complicity in the erosion of North Korean sanctions enforcement. Such violations are “not one-offs; they are systematic,” Haley said in a blistering critique delivered at a Security Council session. Russian officials disputed the claim, joining Chinese counterparts in denying any softening of support for sanctions enforcement.

“Russia has not simply looked the other way as its nationals and entities engage in activities explicitly prohibited by U.N. sanctions,” Haley said. “Russia has engaged in a concerted campaign to cover up violations of sanctions.”

The appearance of stability

Despite their complaints about lapsed enforcement, Trump administration officials insist that sanctions continue to work and that the pressure against North Korea is both unprecedented and sustained. And there is independent data suggesting that they are correct.

While it is difficult to obtain accurate measurements, a recent analysis by South Korea’s central bank found that North Korea’s economy shrank by about 3.5 percent last year, a drop that economists have attributed almost entirely to sanctions. Today, three months after the Kim-Trump summit, North Korea still struggles to find markets for its coal and iron ore, two critical sources of revenue. Increased sanctions-busting efforts have helped only marginally, as the bulk of North Korea’s marketable coal remains on the docks, said Benjamin Katzeff Silberstein, associate scholar at the Foreign Policy Research Institute and co-editor of North Korean Economy Watch.

“There is still a great deal of pressure,” Silberstein said. Bulky items such as coal “don’t seem to be getting across,” he said.

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Yet other, smaller items may be getting over the long border with China, where smuggling is a way of life for many traders, analysts say. There are also multiple signs that conditions in North Korea have stabilized, at least for now. Kim Byung-yeon, a Seoul National University economics professor who developed an index for gauging the effectiveness of sanctions, said North Korea’s overall economy has been under severe stress since last fall, when the harshest U.N. restrictions went into effect. And yet, surprisingly, he said, conditions for ordinary North Koreans don’t seem to be getting any worse.

Indeed, prices for staples such as rice and gasoline have dropped since the spring, returning to close to normal levels after soaring to near-record levels over the fall and winter. Currency exchange rates in North Korea also have remained stable, according to data collected by Kim and other economists. If the last round of sanctions had been properly implemented, conditions should be worse than this, Kim said.

While coal exports are down, North Korea appears to be expanding its economic cooperation with China in other spheres, according to Lucas Kuo, an analyst for C4ADS, a Washington nonprofit agency that researches black-market networks.

Some experts suggest that the apparent economic gains are temporary. One theory holds that North Korean officials are burning through foreign currency reserves at an extravagant rate in attempt to stabilize the economy and make up for losses in income from coal. In any case, the improvements in inflation rates roughly coincided with the diplomatic thaw, which began with the PyeongChang Winter Olympics in February and gained momentum with the secret summit between the leaders of China and North Korea in March.

Kim, the economist, said the United States could have increased its leverage if it had slowed the pace of diplomacy for a few more months to allow the “maximum pressure” campaign to take full effect. He also argues that Washington made a costly error by launching a trade war against its chief Asian trading partner China instead of seeking to preserve a united front against the North Korean leader and his nuclear weapons.

That moment has clearly passed, he said. Now, whether North Korea continues to feel real pressure to change its behavior could hinge on a far less consequential dispute: bickering between Washington and Beijing over tariffs on soybeans and steel.

“If the trade war is really hot and destroys the relationship between the two countries, China may want to use [its] stick — sanctions — as a negotiating chip,” the professor said. “Then this game becomes rather complex and difficult to solve.”

Denyer reported from Seoul. Min Joo Kim in Seoul and Ellen Nakashima in Washington contributed to this report.

Correction: An earlier version of this article misstated the location of this year’s Winter Olympics in South Korea. They were held in PyeongChang, not Seoul.