While the latest round of U.S. sanctions on North Korea’s oil trade is likely to stop major companies from trading due to reputational risks, it is unlikely to stop China’s crude oil supplies to Pyongyang, S&P Global Platts reported in an analysis on Thursday, citing market sources and observers.
Earlier this week, the U.S. Treasury slapped new sanctions on Chinese and Russian entities conducting oil, coal, and banking business with Pyongyang, and propping up the country’s weapons program.
The Treasury’s Office of Foreign Assets Control (OFAC) designated three Russian individuals and two Singapore-based companies involved in providing oil to North Korea, and around a dozen other entities providing support or financial services to U.S.- and UN-designated North Korean entities.
“It is unacceptable for individuals and companies in China, Russia, and elsewhere to enable North Korea to generate income used to develop weapons of mass destruction and destabilize the region,” Treasury Secretary Steven T. Mnuchin said.
Although official Chinese figures did not report oil exports to North Korea after 2013, market sources in North Asia told Platts that the increasingly isolated regime in Pyongyang is currently importing around 6 million barrels of Chinese crude oil per year.
According to two senior traders with two Chinese state-held firms, China still ships small volumes of crude oil via a pipeline to a refinery in North Korea. That refinery with a capacity of 30,000 bpd was built in the 1970s and configured to process only China’s Daqing crude.
According to analysts who spoke to Platts, the U.S. could target to impose additional sanctions on Chinese companies that facilitate oil exports to Pyongyang, but for such sanctions to work, those firms need to be related to the U.S. banking system.
A White House spokesman declined to comment for Platts if the U.S. would seek a deal with China to implement an oil embargo.
“China’s oil embargo against North Korea is its biggest card. It will not play this card easily,” Nobuo Tanaka, chairman of Japan’s Sasakawa Peace Foundation, told S&P Global Platts.