China’s National Oil Company Suspends Sales to North Korea

Reuters reported on Wednesday that China’s state-controlled National Petroleum Corporation has suspended fuel sales to North Korea for an undetermined period of time. CNPC is the primary supplier of fuel to North Korea.

On the surface, it appears that China is using its ultimate leverage with Pyongyang. Threats to North Korea’s oil supply are regarded by some observers as the best way to tell when Beijing truly loses patience with its psychotic client state.

It also seems noteworthy that the Chinese move comes after President Trump’s public expressions of frustration with China regarding the North Korean crisis, and rumbles from the administration that new sanctions against China may be forthcoming.

The sanctions most immediately in prospect concern Chinese complicity in human trafficking. The U.S. State Department published a report on Tuesday labeling China one of the worst human trafficking nations in the world, with Secretary of State Rex Tillerson citing China’s importation of forced North Korean labor as one of the most serious offenses.

This report has been widely interpreted as a sign of deteriorating U.S.-China relations, and perhaps even as focused retaliation for China’s failure to bring North Korea to heel, even though the report was surely under construction for a long time–and frankly, China’s human trafficking problems are so severe that willful blindness would be required to ignore them.

The Chinese government claims the decision to suspend North Korean oil sales is “commercial” in nature, not a punitive action against the Kim regime’s pursuit of nuclear missiles. To put it bluntly, the Chinese say they are afraid North Korea will not pay the bills for its oil shipments, due largely to the impact of international sanctions against the regime’s missile and nuclear programs.

As Reuters portrays it, there is some degree of confusion in the Chinese government and CNPC management about which fuel sales were suspended and why. One source suggested the Chinese are making a more vigorous effort to cooperate with sanctions against North Korea, and they realize their efforts will make it harder for Pyongyang to pay its bills.

Reuters analysts found substantial evidence for a significant reduction of Chinese oil shipments to North Korea last month, reflected by much higher gas prices in the outlaw state. Complete data for June will be needed before analysts can determine if this is a lasting policy trend or a one-month statistical blip. Crude oil shipments from China to North Korea don’t seem to have been significantly reduced yet, just processed gasoline and diesel fuel.

A report at OilPrice.com suggests the spike in North Korean gas prices may have been caused by fear of a possible Chinese oil embargo, rather than the more modest actions they have already taken.

The South China Morning Post reported on Wednesday that according to a high-ranking defector, North Korea has largely managed to shift its fuel imports to Russia, which would greatly reduce China’s oil leverage.

“It is a wrong perception that North Korea is completely dependent on China,” said defector Ri Jong-ho.

He said dictator Kim Jong-un’s plan to replace Chinese oil with imports from Russia has been moving ahead at full steam since 2014, when a visit from Chinese President Xi Jinping to South Korea “infuriated” Kim and prompted him to begin viewing China as an “enemy state.”

If Ri’s assessment is correct, then some of the public confusion from the Chinese government over suspended fuel sales to North Korea might be due to the reluctance of Chinese officials to admit they have lost much of their leverage over Pyongyang. China has traditionally profited greatly from selling itself as the last resort for curbing the worst excesses of the Kim regime. If that posture is now a bluff, Beijing will not want it to be called, and the current suspension of fuel sales might really be best understood as apprehension over North Korea’s willingness and ability to pay.


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