NK trade companies ordered to find ships; Kim’s turn to Russia and the PRC; China still buying Iranian oil; Iran exporting metals and minerals
Prohibited Transactions for the week of 13 Nov 2023 (#28)
//Hi everyone, thanks for reading! I hope you’ve been finding the newsletter useful. With the upcoming holiday in the US, I will be taking a two week publishing break. The next issue of Prohibited Transactions will come out on 8 December 2023. Until then!
North Korea
According to covert reporting from inside North Korea, the country’s trade ministry ordered trade companies that are part of provincial trade bureaus to develop more maritime transport routes, and to obtain used cargo ships, in particular from the PRC. The trade companies are allowed to pay for the vessels either in cash or through bartering, must create shell companies to help facilitate the transactions, and are expected to conclude purchases by April 2024. //The article also quotes trade officials who say that the timeline is too short to get it done by April. Though the purchase of any cargo vessels likely won’t be visible to international financial institutions, there could be an influx in mid- to late 2024 of vessels engaging in illicit smuggling or ship-to-ship (STS) transfer activity tied to the DPRK.
In response to recent statements by the US secretary of state about the increased cooperation between Pyongyang and Moscow, the DPRK’s Ministry of Foreign Affairs reaffirmed the “new reality” of relations between the two nations and that their “friendship will invariably grow in strength.” This statement comes as a Russian delegation traveled to the DPRK and signed agreements to increase bilateral cooperation in “trade, economy, science and technology.”
According to Ukraine media, frontline Russian soldiers are thanking North Korea on social media for new rockets that have been delivered to battlefields.
Some experts and analysts believe that Kim Jong-un is making a “fundamental reformulation of his foreign policy” by giving up on seeking concessions from the international community or reaching an accommodation with the US, and is instead focusing on strengthening relationships with Russia and the PRC. To adapt to these changing geopolitical circumstances, and to lower the chances of nuclear war, the US may have to rely less on sanctions pressure to try to change Pyongyang’s behavior, but could instead offer “limited forms of sanctions relief” in an attempt to get the DPRK to engage in “risk reduction” activities with the US. //Even if there was some sort of sanctions relief granted the DPRK, it’s unlikely that many international banks or companies would jump back into business with Pyongyang (I believe Tehran complained about the same global reticence after they were given some sanctions relief). So it’s not clear how North Korea would benefit from limited sanctions relief. It also may be politically difficult (especially in the US) to justify sanctions relief when Kim continues to engage in missile tests and acts as a weapons supplier for Moscow.
North Korean moneychangers are moving their activities deeper underground as authorities continue to crack down on foreign currency transactions occurring outside of the formal banking system. //The government keeps trying shore up the country’s foreign exchange reserves by enticing citizens to give up any foreign currency holdings.
Relations between North Korea and Iran strengthened during the Trump administration after the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA) nuclear agreement. Military cooperation between Pyongyang and Tehran has likely accelerated post-JCPOA, and in the future, the two sides could also cooperate on Syria’s reconstruction. //The article noted that other forms of cooperation have never really taken off. I’ve always been curious, though, if people running their respective illicit networks have ever discussed experiences and exchanged tacit knowledge about how to evade US and international sanctions.
Iran
According to US media, in 2019 HAMAS switched from hawala to digital currencies as a way to move funds from Tehran to the Al-Qassam Brigades, HAMAS’ military wing. The US government estimated that Iran gives HAMAS approximately USD100 million a year in funds, and the terrorist group also raises money through charitable organizations, tax revenues in Gaza, and skimming foreign aid funds.
The European Union is discussing ramping up sanctions against Tehran for its support of HAMAS, though there is disagreement on if the timing of new sanctions would exacerbate tensions in the Middle East.
On average over the first 10 months of 2023, the PRC purchased 1.05 million barrels per day (bpd) of oil from Iran, which is 60 percent above pre-sanctions peak levels in 2017. In October 2023, Beijing is estimated to have purchased approximately 1.45 million bpd of oil, the highest monthly level ever. The oil is being purchased by teapot refineries, which have minimal need to use the US dollar financial system, and are likely paying for the oil in RMB. //With US sanctions pressure against Iran likely to increase following HAMAS’ terrorist attacks against Israel, will the US take a harder line against these oil sales? According to initial reporting from the APEC summit, Biden and Xi did discuss Iran, but in the context of broader tensions in the Middle East, and not Chinese oil purchases.
The Iranian government reports that the country exported more than USD7.4 billion worth of mining and mineral products between March and October 2023. This includes six million tons of steel products and over 175,000 tons of copper and other downstream products. //According to older estimates, Iran could have USD800 billion worth of proven and potential mineral reserves. Though the country’s mining sector was sanctioned by the US in 2020, it wouldn’t be difficult to disguise the origin of any Iranian metals and minerals, or to quietly sell to counterparties who could then mislabel the origin of the minerals and metals.
The US government has extended by another four months a sanctions waiver allowing Iraq to purchase Iranian electricity. Iraq has historically been reliant on imported Iranian gas to meet its electricity needs. //As discussed in Issue #8, in June 2023 Iraq received a sanctions waiver and transferred approximately USD2.76 billion to Iran to pay off debts owed for gas and electricity exports. Baghdad may owe as much as USD10 billion to Tehran.
According to the Iran-Brazil Joint Chamber of Commerce, the two countries are looking into establishing a joint bank so business transactions can happen directly. //Hard to tell if something is really going to come of this or not.