World Economy

Wanted: Buyers for North Korean arms and other illicit goods

Key Points
  • North Korea may find it difficult to continue exporting illicit goods to its previous customers in light of the U.N.'s latest sanctions
  • Buyers of North Korean exports who previously ignored sanctions are now under greater pressure to comply, according to experts

Stung by the latest round of United Nations sanctions, North Korea is likely on the lookout to expand its illicit trade outlets. But countries who previously did business with the rogue state may now be less inclined to make new deals.

People watch news report showing North Korea's Hwasong-14 missile launch on electronic screen at Pyongyang station, North Korea in this photo taken by Kyodo on July 29, 2017.
Kyodo via REUTERS

Pyongyang props up its nuclear program with income from the sale of various illegal goods, including weaponry, synthetic drugs, counterfeit currency and nuclear technology. Those go to a range of frontier markets across Africa, the Middle East and Southeast Asia. And while North Korea has been under sanctions since 2006, that's never deterred buyers — until maybe now.

As Washington and Beijing turn up the heat on Kim Jong-un's regime, reflected by Saturday's new penalties, fewer nations may now be willing to risk the international community's wrath by engaging with Kim.

"There is now a much greater cut Pyongyang's diplomatic ties in the developing world and raise awareness of various U.N. resolutions," said Karl Dewey, an analyst specialized in chemical, biological, radiological and nuclear assessments at defense researcher Jane's by IHS Markit.

The fresh set of penalties imposed on Kim's administration this past Saturday could subtract $1 billion from Pyongyang's coffers, the U.S. State Department estimated.

"Tighter sanctions and added pressure from the U.S. could make it even more difficult for North Korea to push through some future contracts as countries could think twice about buying from North Korea at this time," echoed Omar Lamrani, senior military analyst at geopolitical intelligence firm Stratfor.

A key reason behind the potential shift in mentality from previous years lies in the nitty-gritty of Saturday's resolution.

Eurasia Group's Scott Seaman: Sanctions are designed to really squeeze North Korea

One of the secondary sanctions efforts deals with jurisdictions that are non-compliant with U.N. resolutions, Stephan Haggard, visiting fellow at the Peterson Institute of International Economics, said in a Monday note.

Specifically highlighted are ports in China, Iran, Russia and Syria that "do not engage in inspections and essentially permit transshipment and trade to take place," Haggard continued.

While those nations may not change their behavior anytime soon, the legislation could have more effect "with other developing countries more concerned about their reputation with the West."

Will Iran pick up the slack?

Speculation is high that Tehran could increase exchanges related to ballistic missiles with Pyongyang amid reports of cozier bilateral ties. Last week, the head of North Korea's parliament arrived in Tehran for a trip that was widely seen as a front for expanded military cooperation.

In the past, both nations have focused on missile cooperation rather than outright transactions. "The main elements of this cooperation appear to be the transfer of North Korean liquid-fueled missile technology to Iran, but with very few reports of Iranian solid-fueled technology going the other way," said Dewey.

Experts, however, told CNBC they don't believe there's likely to be any heightened activity.

There is a chance the two could exchange nuclear weapons blueprints, but that wouldn't be wise for Kim as it would elicit even greater international rebuke, according to Lamrani.

"North Korea's nuclear program is all about ensuring its security by deterring foreign attack. Crossing over into significant nuclear proliferation weakens that deterrence by adding pressure on the U.S. and allies to act on Pyongyang instead of simply containing it," he added.

Iran is ready for business, but banks are not buying it

So, who are North Korea's customers?

When it comes to military hardware sales, clients can be classified into three groups, Andrea Berger outlined in a 2016 paper when she was deputy director of the proliferation and nuclear policy program at the Royal United Services Institute.

The most resilient customers include fellow renegade nations such as Iran, Syria, Cuba and Uganda, "whose military ties to North Korea have weathered decades and shown few efforts to cease cooperation," Berger said.

Reluctant customers, such as Ethiopia and Yemen, "might prefer to buy elsewhere, but because of price or lingering dependency have found it difficult to cut Pyongyang out of their arms-related supply chain," Berger continued, adding that Republic of the Congo was one of the ad hoc customers that used North Korea as a sporadic supplier.

While those markets are now expected to stay away from Pyongyang in light of the new sanctions, Dewey noted they could be susceptible to striking more deals depending on whether prices justified the increasing pressure surrounding North Korea.

Regarding North Korean nuclear technology exports, Libya and Syria have been the primary recipients, but neither is currently seen in a position to resume their nuclear programs.

Meanwhile, the Philippines — North Korea's third-largest trading partner in 2016 — remains a hub for drugs from the pariah state, according to the Peterson Institute of International Economics.