This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• South Korea decided to expand the operational area of its anti-piracy unit already deployed in the Gulf of Aden to cover Hormuz Strait, without joining the U.S.-led International Maritime Security Construct (IMSC).
• The U.S. Government welcomed Seoul’s decision to expand operations to the Persian Gulf.
• Iran has expressed “concern” about the troop deployment, but also noted that it “understands South Korea’s decision.”
• There was some domestic push back; however, according to polls, 51.9 percent of South Korean support the troop deployment.

Implications: The South Korean government’s decision to dispatch troops to the Strait of Hormuz exemplifies South Korean idea of “balanced” diplomacy – accommodating different demands of surrounding powers while also avoiding any direct conflicts. South Korea partially conformed to the American request by expanding the Cheonghae Unit’s operational zone, but minimizing the risk of directly provoking Iran by not joining the IMSC.

The government also bypassed the difficulty of getting domestic approval for overseas troop deployment by framing it as an “extension” of the existing operation, rather than commencing a new mission. According to the law, the government needs parliamentary approval for overseas troop deployment. However, such consent is unnecessary for expanding the operation zone of a deployed unit.

Context: South Korea has managed to achieve a relatively successful balancing act between the demands of its most important ally and a potentially important future trade partner. South Korea was the 4th largest exporter to Iran in 2011. After the conclusion of the 2015 Iran nuclear deal, Korean exports to Iran grew from $6.1 billion to $12 billion in 2017. South Korea also imported approximately 230,000 barrels per day from Iran in 2011. The reimposition of U.S. sanctions on Iran in 2018 suspended this deep commercial relationship, but Seoul likely hopes for a speedy resolution of the tensions and the lifting of sanctions to reengage the growing consumer market in Iran.

Korea View was edited by Yong Kwon with the help of Gordon Henning, Soojin Hwang, Hyungim Jang, and Ingyeong Park.

Image originally appeared on a Korea Herald article from March 12, 2019

By Andray Abrahamian

Earlier this month, President Donald Trump warned Iraq’s government against expelling U.S. forces from the country. “If they do ask us to leave,” he said, “if we don’t do it in a very friendly basis, we will charge them sanctions like they’ve never seen before ever. It’ll make Iranian sanctions look somewhat tame.” While this was an idiosyncratic statement to say the least, it does highlight the United States’ over-reliance on sanctions as a foreign policy tool. When we don’t know what to do: sanctions.

With Iraq, this threat might have an impact: the Iraqi political-economy is enmeshed with the United States. Mr. Trump seeks to alter the calculation of a single debated policy issue in Baghdad, albeit a significant one. The goal is discreet, which is when sanctions have the best chance of success.

When it comes to adversaries who tend to view relations with the United States as a zero-sum conflict, it becomes trickier, especially when the United States is asking for a fundamental change in national defense and foreign policy. This brings us to both North Korea and Iran. These two countries were adversaries of the United States long before Mr. Trump was a reality TV star, much less the U.S. President. He inherited and inflamed both relationships, before creating divergent paths: dialogue (with North Korea) and pressure (with Iran). Sadly, both approaches seem to leading to dead ends. Yet sanctions targeting both Iran and the DPRK will remain.

The dead end is this: when targeted states believe that they must not – nay, cannot – yield to their more powerful enemy, even under damaging sanctions, they find coping mechanisms. North Korea and Iran both have become adept at smuggling their main exports. U.S. unilateral sanctions ban the sale of Iranian oil and threaten importers elsewhere with penalties if they don’t comply. UN sanctions on North Korea block the exportation of coal, seafood and other goods. Both states therefore hide their shipments, reflagging and changing the identification codes of their ships and turning off the transponders that all merchant vessels are supposed to use to allow tracking. Both countries have learned to conduct ship-to-ship transfers at sea to move products onto non-sanctioned vessels.

Iran and North Korea are both forbidden by the UN from exporting weaponry, but continue to do so. It turns out the global arms trade is a shadowy world, full of brokers willing to bend and break the rules. Both states have come to rely on a network of individual actors abroad, motivated by high profit margins for high risks, and countries whose interests are not aligned with the United States, to survive.

It’s not that sanctions don’t have costs. Smuggling is no substitution for normal exports and state coffers in both Tehran and Pyongyang are emptier than they would be without sanctions. But as resources dwindle, the core institutions of the state tend to get a bigger share of a shrinking pie as their governments double down on hardline positions. In both countries this means the military and security services. The further away you are from the heart of the system, the less there is for you.

In both Iran and North Korea, there is anecdotal evidence of medical supplies being limited and NGO relief work being hampered by sanctions. In Iran, food prices have soared under sanctions, causing hardship. In North Korea, which is a far more opaque country, it is less clear how nutrition is being impacted, but it seems likely that the most vulnerable are being harmed.

Ordinary citizens also find coping mechanisms through smuggling and informal money transfers. Money transfers in Iran, using what is called a hawala system, work like this: let’s say you wanted to buy a $5,000 Persian carpet. You’d wire the money to an “exchanger” – a hawaladar – in, say, Dubai. He’d call his counterpart in Tehran and say, “I’ve got the dollars here. You can put the equivalent into the rug merchant’s local account and tell him to send the rug.” So trade with Iran isn’t completely stopped, but ordinary businesses pay a premium: the carpet merchant has to pay for the exchanger’s services, often 3 to 5 percent in the case of Dubai. The carpet may also be sent to a third country to hide its origin.

The commissions taken by Chinese financiers for facilitating North Korea’s transactions are higher. Estimates range from 5 to 20 percent, but can increase depending on risk perception. This is, of course, for customers who show up at all, given the hassle and possibility of risking the ire of the United States. Certainly, major companies will steer clear.

What is most likely with both Iran and North Korea in 2020 is period of increased tensions and provocations. This will lead to additional sanctions by Washington, but with no clear solutions for resolving its tensions with either Iran or North Korea. Neither regime will disappear, nor relax its control over its citizens. Great Powers whose interests are not aligned with the United States will throw lifelines to these beleaguered economies and ordinary citizens will find ways to suffer through reduced economic opportunities. Continued economic pressure will further marginalize whatever voices for compromise and dialogue exist in both Tehran and Pyongyang as policymakers fall in line with hardline approaches to the United States.  The leadership in Tehran will increase support for proxy forces around the Middle East and gain influence in Iraq while leaders in Pyongyang will continue to place their limited resources into furthering their nuclear and missile programs.

In this context, continuing to “charge them sanctions” unless the target states offer concessions beyond what they can tolerate harms American interests. And of course it harms ordinary citizens whose only crime is being born in either the Islamic Republic of Iran or the Democratic People’s Republic of North Korea.

Andray Abrahamian is a Non-Resident Fellow at the Korea Economic Institute and Visiting Scholar at George Mason University Korea and Senior Adjunct Fellow at Pacific Forum. The views expressed here are the author’s alone.

Photo from Gage Skidmore’s photostream on flickr Creative Commons.

By Robert R. King

In the last few days the United States and Iran faced off in their most recent and one of their most dangerous confrontations.  North Korea’s leader Kim Jong-un was no doubt watching more intently and more anxiously than most other world leaders.  It is hard to believe that Chairman Kim has not been thinking in very personal terms about the situation involving Iranian General Qasem Soleimani and Iran’s Supreme Leader Ali Khamenei.

A clear indication of Pyongyang’s intense interest in the U.S.-Iran confrontation is the fact that North Korea’s tightly-controlled news media has been unusually quiet on the topic.  The media avoided comment or even giving coverage to the actions taking place between Washington and Tehran.  North Korean media cited the public Chinese and Russian criticism of the U.S. drone strike in Baghdad, and reported that Soleimani had been killed.  The North Korean story did not mention Soleimani’s high position in the Iranian military hierarchy nor give an indication of his importance in Iran.  Kim Jong-un’s visit to a fertilizer factory at the time of these events was given considerably more media coverage in Pyongyang.

North Korea, Iran and the “Axis of Evil”

North Korea has been consistently placed in the same category as Iran by U.S. presidents over the last two decades.  Additions and deletions have been made to U.S. listing of rogue regimes, but the only two countries consistently on the list are Iran and North Korea.  Nearly 20 years ago shortly after the 9/11 destruction of the World Trade Center in New York City,  President George W. Bush linked North Korea and Iran when he included both countries plus Iraq, which was invaded shortly afterward, in the memorable phrase “Axis of Evil.”  During the Bush Administration, John Bolton added Cuba, Venezuela, and Libya to the Axis of Evil.  The revolutionary overthrow and execution of Muammar Qadaffi a few years later resulted in the removal of Libya from the list.

In his first State of the Union Address in January 2018, Donald Trump singled out four “communist and socialist dictatorships” for his own list of rogue regimes threatening world peace.  Trump’s list was Iran, North Korea, Cuba and Venezuela.  The fact that Iran and North Korea are consistently on the naughty list must make Kim Jong-un very attentive to how the U.S. president is dealing with Iran.

On January 8, just a few days after the death of Iranian General Soleimani in the U.S. drone strike in Baghdad and the day after Iranian missiles were fired in retaliation against U.S. military bases in Iraq, President Trump delivered a closely watched White House speech on Iran.  Officials in Pyongyang were probably paying very careful attention to Trump’s speech.

Pyongyang is also very likely watching closely the popular upheaval and protests in Iran that followed just a few days later when the Iranian government belatedly admitted that one of its missiles had mistakenly shot down a Ukrainian commercial aircraft killing 176 mostly ethnic Iranian passengers.  In light of North Korean and Iranian cooperation on nuclear and missile issues, as well as both countries’ hostility to the United States, Pyongyang is probably paying very close attention to what has transpired between Tehran and Washington.

North Korea’s Ties with Iran on Nuclear and Missile Development 

The two countries have cooperated in the development of missile delivery systems.  North Korea provided scud missiles to Iran in the 1990s and probably earlier during the Iran-Iraq war, but Iran has continued to develop its own missile capabilities.  Iranian missiles appear to have more accurate targeting capability than we have seen thus far from North Korean launches in the last few months.

Public information about nuclear cooperation between Tehran and Pyongyang is limited, but in the past North Korea shared nuclear technology with countries hostile to the United States in the Middle East.  A North Korean-built nuclear reactor in Syria was destroyed by the Israeli military before it was completed.  The International Atomic Energy Agency confirmed that the destroyed facility had the capability to produce nuclear weapons-grade materials.  No similar nuclear smoking gun has been identified in the case of Iran, but there are convincing indications that North Korea and Iran have aided each other in their missile and nuclear quest.

President Trump’s efforts to work with Kim Jong-un to reduce tensions on the Korean peninsula have largely foundered over North Korea’s nuclear aspirations.  A path forward on the nuclear issue was not identified in working-level discussions prior to the Hanoi Summit between President Trump and Kim Jong-un, and that was the reason the summit failed.  The first sentence in President Trump’s January 8 speech on the current crisis with Iran—even before the President said “Good morning” to the assembled journalists and dignitaries—was this statement: “As long as I’m president of the United States, Iran will never be allowed to have a nuclear weapon.” That first statement was only then followed by a “Good morning” and the information that no Americans were harmed in the Iranian missile strikes on U.S. bases in Iraq just a few hours earlier.

The unequivocal reaffirmation of opposition to nuclear weapons for Iran was likely interpreted in Pyongyang by Kim Jong-un as a very negative signal with regard to the possibility of some accommodation with the United States.  Kim has been adamant in insisting that he intends to maintain and enhance North Korea’s nuclear and missile capability.

Trump’s Whims, Not National Consensus is the Basis of U.S. Policy

A red flag warning to Kim Jong-un from President Trump’s action against Iran is that U.S. policy is not based on a broad national consensus.  Policy changes take place at the whim of the person who happens to be in the White House.  Trump made that point clear in his January 8^th White House speech on the Iranian missile attacks on U.S. military facilities in Iraq.  He harshly criticized by name his predecessor, former President Barack Obama.

Trump also blamed the multinational agreement to limit Iran’s ability to develop nuclear weapons, known as the JPCOA (Joint Comprehensive Plan of Action).  This agreement was negotiated with the participation and support not only of the United Sates but also the other members of the UN Security Council (China, France, Russia and the United Kingdom) as well as Germany and the European Union.  The bottom line message from the President’s speech and U.S. military actions is that policy changes with a change in leadership.  Policy changes at the whim of the person who happens to be in the Oval Office at the time.

In light of U.S. actions involving Iran over the last few weeks, the aggressive U.S. action against one of North Korea’s few friends, as well as the idiosyncratic personal role played by President Trump are likely to make the North even more cautious about making any serious long-term changes in its relationship with the United States.  Suspicion and caution about United States intentions raised by the Iranian actions will likely make further progress on U.S.-North Korean relations even more difficult and unlikely.

Robert R. King is a Non-Resident Fellow at the Korea Economic Institute of America. He is former U.S. Special Envoy for North Korea Human Rights.  The views expressed here are his own.  

Photo from Peyman Abkhezr’s photostream on flickr Creative Commons.

By Mark Tokola

The Trump Administration’s precipitous decision to remove American troops from Northeast Syria, where they had been allied with Kurdish forces in opposing ISIS, and had been deterring Turkish forces from attacking the Kurds, raises questions regarding the wisdom of relying on the United States.  Of course, the U.S. commitment to have forces in the region had not been open-ended.  They would have had to leave at some point.  The shock came from the withdrawal coming without warning and apparently without a plan regarding what would happen next.  The move seems to have taken everyone by surprise: the Kurds, U.S. allies, and even the U.S. government outside of President Trump’s innermost circle—if he had told anyone at all ahead of his announcement.

The role and mission of U.S. troops deployed abroad is always open to discussion and policies can change.  Even surprise is not necessarily a bad thing.  Tactically, there are advantages to surprising adversaries.  It is hard to ever imagine a circumstance, however, when one should surprise an ally, particularly in the battlefield.  And if the surprise consists of suddenly leaving an ally to face an enemy alone, it will be hard to justify for any reason.

South Korea is among the countries most dependent on the United States for its security.  It faces an overtly hostile North Korea and a China that often applies pressure on South Korea, for example in its opposition to South Korea deploying a defensive anti-missile system, THAAD.  South Korea has integrated its armed forces with those of the U.S. in a Combined Forces Command (CFC) and has forgone developing its own long-range missiles, and perhaps even a nuclear weapons program, because of its trust in U.S. extended deterrence and U.S. commitment to the defense of the Republic of Korea.  How will South Korea view the U.S. abandonment of the Kurds?

First, the plight of the Kurds is not an abstract and distant concept for South Koreans.  During the Iraq War, South Korean provincial reconstruction teams (PRTs) operated in the Kurdish areas of Northern Iraq.  I visited a South Korean PRT is Irbil, Iraq in 2007 and saw first-hand the warm relationship between the South Korean teams and Kurds they were helping train in practical, civilian skills.  The South Koreans also saw firsthand the personal relationships between the Americans operating in the area and the Kurds.  I have to wonder what they are thinking today.

There are differences between what had been considered the U.S. commitment to protect the Kurds in Northeast Syria and the wartime and treaty alliance with South Korea.  The former was a mutually expedient alliance, put together to serve specific and temporary purposes in the complicated and unpredictable context of the Middle East.  It was not an alliance between countries.  It was not a mutual defense pact.  Perhaps this should be enough to reassure South Korea that its case is different and it need not worry about its reliance on the U.S. for its security.

And yet, South Koreans are concerned about U.S. reliability.  They have found themselves on unsteady ground with the United States, whether going from the U.S.-Korean Free Trade Agreement being called a “gold standard” to “the worst agreement ever” in the course of a year, to burden sharing demands from the United States that have quintupled from a level which the U.S. had found satisfactory, to a unilateral suspension of joint military exercises that South Korea had agreed were essential to force readiness as the result of the first Trump-Kim summit in Singapore.  Any of these might have been the result of an adjustment in U.S. foreign policy.  Taken together, they look less like “America First,” and more like, “Unreliable America.”

The quotation about countries having “no permanent friends, only permanent interests,” has been attributed to Henry Kissinger, Lord Palmerston, and Charles de Gaulle, among others.  Maybe they all said it.  The reason it appears so often is that it introduces a dose of realism when politicians get too carried away in romanticizing relations between countries.  There is not much point to an alliance that doesn’t serve the allies’ long-term interests.  The key phrase, however, is “long-term.”  The United States has benefited enormously for over seventy years from having long-term allies, even when their relationship has gone through inconvenient or aggravating periods.  Russia and China envy the global U.S. alliance system and are attempting to emulate it—whether through Russian permanent bases abroad or through the Chinese Belt and Road Initiative—even as they watch the U.S. weakening its ties to allies.

An alliance is valuable almost only in so far as it is reliable.  The United States has every right to expect allies to proportionately bear the burden and expense of their alliance.  Allies in turn have a right to expect the United States to act reliably.  The U.S. withdraw of troops from Syria, on top of the U.S. withdrawal from the Paris climate agreement, intermediate nuclear forces (INF) agreement with Russia, the Trans-Pacific Partnership (TPP), and other commitments—you can make your own list—puts U.S. reliability in question.  That is tough on alliances, even one so apparently firmly established the one between the United States and South Korea.

Mark Tokola is the Vice President of the Korea Economic Institute of America. The views expressed here are his own.

Photo from Morning Calm Weekly Newspaper Installation Management Command, U.S. Army’s photo stream on flickr Creative Commons.

By Troy Stangarone

Since Japan’s decision at the beginning of July to place national security restrictions on three chemical components critical for the production of semiconductors and display screens much of the focus has been on the South Korea’s dependence on Japan for certain critical technologies. But South Korea’s petroleum supplies also have significant exposure to Middle Eastern geopolitics in the proxy war between Iran and Saudi Arabia.

For the last four years, Yemen has been caught in a civil war where Saudi Arabia has backed the nominal government while Iran has supported the Houthi rebels. At times the conflict has spilled over into Saudi Arabia as the Houthi respond to Saudi strikes in Yemen, but in their latest strike the Houthi damaged two critical oil facilities in Saudi Arabia.

The attacks have knocked out about half of Saudi Arabia’s production capacity, which accounts for 5 percent of global oil supplies. Early estimates are that it could take weeks to restore production to full capacity.

In initial trading after the attack, the price of crude jumped 20 percent to over $70 a barrel before falling to around $66 a barrel, the highest single day increase since Iraq’s invasion of Kuwait in 1990. Some analysts expect prices could rise to $100 per barrel.

While U.S. shale gas might be able to replace some of the supply, it may be of limited help outside of the United States. It would take 90-180 days to drill new wells and the infrastructure may not be in place to get the shale gas to overseas markets.

Despite the Houthi taking responsibility for the attack, the United States has suggested that the strike pattern on the Saudi facility suggests that the attacks came from Iran rather than Yemen. It has indicated that it is considering a retaliatory strike. Saudi Arabia has also suggested that Iranian weaponry was used in the attack, while a strategist for Iran’s Revolutionary Guard has also suggested that the Houthi likely were not capable of undertaking this attack, perhaps adding a degree of credibility to U.S. assertions.

Disruption of Middle Eastern oil supplies has implications for South Korea. Nearly 45 percent of South Korea’s energy consumption is petroleum based and more than 70 percent of those supplies come from inside the Strait of Hormuz. Nearly 30 percent of South Korea’s imports of crude petroleum come from Saudi Arabia.

In the short-to-medium term South Korea should not feel much effect. Some 90 percent of South Korea’s oil imports from Saudi Arabia are under long-term contracts and Saudi Arabia has indicated that it will release oil from its 27 days of reserves to maintain exports. Saudi Arabia has also strategically placed reserves in countries such as the Netherlands, Egypt and Japan, protecting them from potential additional attacks. South Korea which also has 90 days of reserves has indicated that it will release them, if necessary. However, if there were more significant disruptions S-Oil Corp., which imports most of its crude from Saudi Arabia, would be the major South Korean firm to feel an effect.

Regardless of whether Iran or the Houthi are responsible for the attack, there is an increasing danger for South Korean supply lines should the conflict escalate from either further Houthi attacks on Saudi facilities or the escalation of a conflict with Iran.  The Houthi have already suggested that further strikes could be in the works, while an attack by the United States or Saudi Arabia against Iran could further endanger oil supplies in the region.

Until South Korea is able to further diversify its suppliers and shift to other energy sources, its economy is vulnerable to the increasingly unstable geopolitics of the Middle East.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the authors alone.

Graphics by Juni Kim, Program Officer at the Korea Economic Institute of America.

Photo by lawepw on WikiCommons.

By Troy Stangarone

Last week two oil tankers were attacked in the Gulf of Oman. The attack comes after four tankers were attacked in the Persian Gulf in May. While the United States has argued that Iran is behind the most recent attacks, the growing confrontation between the United States and Iran has deeper implications for South Korea.

As a country without substantial domestic energy resources, South Korea is highly dependent upon foreign imports for its energy supplies whether it be oil and natural gas, coal, or the nuclear fuel to run its nuclear power plants.

South Korea uses petroleum and other liquid based fuels for 44 percent of its energy consumption, including for fuel for transportation, power generation, and its petrochemical sector. Liquefied Natural Gas (LNG) accounts for another 14 percent of South Korea’s energy consumption and is used in power generation, transportation, and other sectors.

South Korea’s dependence on imports for energy is also a dependence on the Middle East for imports of petroleum. In 2018, 72.9 percent of South Korea’s crude petroleum imports by value came from inside the Strait of Hormuz. South Korea’s purchases of LNG tend to be more diversified, about 45 percent are also from the Middle East.

With imports from Iran in 2018 beginning to decline from the resumption of U.S. sanctions, to increasing imports from the United States, Russia, and few others outside of the Middle East, South Korea’s imports from the region 2018 were down from 82 percent in 2017.

The significance of the Strait of Hormuz, and South Korea’s dependence on suppliers inside it, is that it is the narrow passage way which divides the Persian Gulf and the Gulf of Oman. This is a critical transit point for global energy exports as 30 percent of the world’s oil exports come from the Middle East. It also boarders Iran, which has threatened to close if the U.S. tries to block Iran’s access to the strait. Iran has also threatened to close the strait in the past.

If Iran attempted to close the Strait of Hormuz, it would have significant implications for South Korea.

South Korea’s dependence on the region for such a significant amount of its energy consumption makes it susceptible to the current tensions in the Middle East in terms of price and supply. After an initial spike in the price of Dubai crude, the benchmark for South Korean oil imports from the Middle East, after the most recent attack on oil tankers markets seem to have calmed. However, some analysts have suggested that prices of Brent crude, the benchmark for the United States, could rise to $100 a barrel from its current price of around $62 today[1].

The prospect for the current tensions between the United States and Iran to grow into a wider conflict will only be one factor on global energy prices. With the current U.S.-China trade tensions dampening global growth, demand for petroleum could decline and act as a counter weight on prices to U.S.-Iran tensions.

If current tensions between the United States and Iran were to escalate to a wider conflict, the supply of oil on global markets would play an important role in maintaining prices, but with the U.S. also trying to cut off Venezuelan oil exports global oil markets could be tighter than expected.

The ability of the United States to build a coalition to protect ships transiting near Iranian territory would also play a factor in the availability of supply and the stability of price. If the United States was unable to build a coalition to defend oil and LNG shipments from the Middle East, South Korea could find itself facing both rising energy prices and an energy shortage if supplies from the Middle East were disrupted.

In the short-term there is little that South Korea can do to insulate itself from instability in the region, but that also means it has a significant interest in the United States and Iran avoiding a wider conflict in the dispute over Iran’s nuclear program. Over time continuing to diversify its supply and moving more towards renewable energy would help to reduce South Korea’s susceptibility to the unpredictability of the Middle East.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the authors alone.

Graphics by Juni Kim, Program Officer at the Korea Economic Institute of America.

Photo from the Official U.S. Navy Page’s photostream on flickr Creative Commons.

[1] Dubai crude tends to be more expensive than Brent crude, but most of the analysis is done in Brent crude prices.

By Kyle Ferrier

Following President Trump’s decision to re-impose sanctions on Iran last May, the White House announced last week it will not be extending waivers on sanctions to countries importing Iranian oil. South Korea is one of only eight countries to be have been granted a waiver, which took effect as U.S. secondary sanctions went into force in early November and are now set to expire on May 2. Faced with this inevitability – though it may have come sooner than anticipated – Seoul’s efforts to diversify oil imports so far already suggest U.S. oil producers will play a key role in making up for the blockage of Iranian imports.

Demand for oil in South Korea has been growing in recent years, all of which must be met with imports. Total crude oil imports grew over from $44.3 billion in 2016 to $80.3 billion in 2018, making South Korea the fifth largest oil importing country last year. This demand has continued into 2019 – the volume of oil imports for the first three months this year is higher than it was during the same period last year.

Before the U.S. withdrawal from the Joint Comprehensive Plan of Action last spring, Iran was South Korea’s third largest source of oil. In 2017, Iran’s $7.5 billion in crude oil exports to South Korea were only behind Saudi Arabia’s $17 billion and Kuwait’s $8.3 billion. However, from September to December, 2018, Seoul cut off oil from Iran in response to Trump’s decision to reintroduce sanctions on Tehran. As a result, Iranian exports to South Korea last year only totaled $3.9 billion, dropping it down to the eighth largest provider of oil to South Korea.

Seoul has reopened the spigot since January, but the flow of Iranian oil has been relatively modest. From January to March, South Korea imported $1.2 billion in oil from Iran. The April imports will likely provide the final figure for the year, but, even with numbers suggesting a last big push before the May deadline, it seems unlikely to come close to last year’s total.

During the period of Iran’s diminishing exports, no other county among the largest exporters of oil to South Korea gained as much as the United States. The $4.5 billion in U.S. oil exports to South Korea last year was a 520% jump from 2017. The numbers for 2019 continue to be promising as the $1.8 billion in U.S. oil exports through March already represents an over 360% increase from the same period last year.

U.S. Secretary of State Mike Pompeo’s remarks that the U.S., Saudi Arabia, and the U.A.E will help to offset the losses from Iranian trade further provides reason to be bullish on U.S. oil exports to South Korea, but there also limitations.

Iranian and American crude oil are not perfect substitutes. There are some American sources that produce oil similar to that from Iran, but at a much lower rate. These may also be needed for more domestic consumption in the U.S. in the face of limited oil supply from Mexico and Canada and the now completely cut off supply from Venezuela after new sanctions enacted in in January. That many South Korean refineries are set up to specifically process Iranian oil will also add to the cost of the adjustment.

Still, the growing demand for oil in South Korea and the removal of a major competitor from the field – irrespective of the politics behind the decision – bodes well for American producers, now churning out more oil than any country thanks to the Shale Revolution.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Enrico Strocchi’s photostream on flickr Creative Commons.

By Phil Eskeland

Yesterday, the U.S. Senate voted by a wide bipartisan margin for an amendment expressing opposition to a precipitous withdrawal of U.S. forces from Syria and Afghanistan.  Nearly every Republican Senator and more than half of the Senate Democratic Conference supported this amendment.  This vote comes after confusing pronouncements from the Trump Administration that U.S. troops would soon be leaving Syria and Afghanistan.  It also comes just one week after another legislative effort, offered by Senate Minority Leader Charles Schumer (D-NY), to oppose the lifting of sanctions against a Russian oligarch close to Russian President Vladimir Putin, which garnered the support of not just every Senate Democrat, but also 11 Senate Republicans.  What was notable about yesterday’s vote was the author of the amendment:  Senate Majority Leader Mitch McConnell (R-KY), who sets the legislative agenda for Senate Republicans and, by practical effect, for President Donald Trump.

Last year, there were a few examples of the Republican-led Congress blazing its own trail in setting some aspects of U.S. foreign policy apart from the Trump Administration such as a rare prohibition on the ability of the President to waive sanctions against Russia.  However, with the departure of some key national security advisers and Cabinet officials during the past year who were thought to be the “adults” in the room to manage President Trump divergence from traditional Republican orthodoxy on foreign policy and with the gains Democrats made in the 2018 elections, many Republican national security “hawks” are coming to the conclusion that they need to differentiate themselves from President Trump on several fronts.

This may have implications for U.S. policy towards North Korea.  Last December, the President signed into law the Asia Reassurance Initiative Act (P.L. 115-409), which makes clear that the policy of the United States with regard to North Korea’s nuclear and ballistic missile programs is the “complete, verifiable, and irreversible dismantlement of such programs.”  The new law also states that “it is the policy of the United States to continue to impose sanctions” on North Korea until it “is no longer engaged in the illicit activities described” in various U.S. Executive Orders and United National Security Council resolutions.

In addition, earlier this week, Representative Mike Gallagher (WI-8^th) introduced bipartisan legislation (H.R.889) with three other Republicans and four other Democrats to renew the restrictions on the ability for the President to reduce the number of U.S. troops on the Korean peninsula below 22,000 personnel.

These legislative efforts may complicate negotiations with North Korea, particularly if the upcoming summit meeting between President Trump and North Korean leader Kim Jong-un leads to a relaxation of sanctions without a clear path towards dismantling the existing stockpile.  If defense “hawks” in the U.S. conclude that North Korea continues to engage in various illicit activities, then implementing any agreement would be very problematic.  Recall that the Agreed Framework of 1994 did not succeed, in part, because of Congressional reluctance and resistance to fulfilling the American side of the bargain by slow-walking the provision to provide aid to North Korea.  This did not allow the completion of the light-water reactor and delayed the delivery of heavy fuel oil on several occasions.  From 1995 until 2006 (excepting 18 months from 2001 until 2002, Democrats controlled the Senate), Republicans controlled Congress.  Thus, it is of the utmost importance for the Trump Administration to continuously brief and inform Members of Congress regarding U.S. policy towards North Korea to garner their support and to avoid a repetition of previous failed diplomatic efforts to end weapons of mass destruction threat from the DPRK.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.

Picture taken by Lance Corporal Zachery Laning, U.S. Marine Corps via Wikimedia Commons

By Yong Kwon

There is a perception that the Moon administration’s adoption of heterodox policies has made it more difficult for South Korea to overcome the current economic downturn. In particular, the minimum wage increase has been singled out as evidence of the government’s untested approach to tackling low growth and unemployment. However, this is a mischaracterization of the government’s outlook and actions. A key factor holding back the recovery may actually be President Moon’s faithfulness to the policy tools that preceding administrations have used to address economic challenges.

An overview of the administration’s recent policy measures reveals that they are not out of sync with past efforts.

In response to weak global demand, the Korean government has acted as a buyer of last resort to keep exporters afloat, notably shipbuilders. With the glut of container vessels in the market reducing the number of new orders, the government has extended financial support to Hyundai Merchant Marines to purchase new megaships from domestic companies. Although this subsidy created frictions with the European Union and Japan, Seoul considered these measures essential to ensure the survival of local parts makers. This is reminiscent of measures that South Korea undertook during the oil crises of the 1970s and 80s to sustain the operations of national champions until global demand recovered.

Seoul is also proactively engaging with foreign governments to expand export opportunities. In addition to successfully renegotiating the Korea-U.S. Free Trade Agreement, the Korean government has been particularly focused on the Middle East. There were concerns early in President Moon’s term that his pledge to phase out domestic nuclear power plants at home would jeopardize the landmark nuclear energy project in the UAE that was secured under the Lee Myung-bak administration. However, by reaffirming commitments to broaden ties with the UAE, the Blue House assured that the project would not only proceed, but also potentially grow. Moreover, using this project as a benchmark, the Moon government has also been forward leaning on opportunities in Saudi Arabia.

Meanwhile, the government is also actively shaping regulations and providing financial resources to assist domestic firms striving to become first movers in innovative sectors. The Korean government’s long-standing support for enterprise application of Artificial Intelligence is beginning to bear fruit with the country’s nuclear reactor exporters adopting the technology for supply-side controls. This innovative solution to proliferation concerns received praise from the Bulletin of Atomic Scientists. More recently, the Moon government has turned its attention to blockchain technology. In addition to upholding the ties that cryptocurrency exchange markets have with traditional banks, Seoul is actively considering permitting Initial Coin Offerings to take place to further encourage investment in this new field. This comes despite concerns from financial regulators earlier this year that such moves may destabilize the market.

Moreover, the government is actively supporting innovative companies by showcasing their products in public institutions. Myongji Hospital, which has collaborated closely with the Ministry of Health and Welfare in the past, partnered with the technology company BICube to integrate blockchain technology in its medical exchange system. This mirrors past efforts undertaken by the government to bolster the robotics industry by integrating smart robots in classrooms, generating domestic interest and demand for the nascent industry.

As evidenced by these measures, policies undertaken by the incumbent Korean administration do not diverge greatly from those advanced by past governments. However, the problem may be that these toolsets are insufficient to jumpstart economic growth today.

The Korean government has yet to find a corrective for the country’s overexposure to global demand. More specifically, it has not found a way to transform the dependent relationship that local parts suppliers have with conglomerates that might reduce shocks that are currently transferred to small and medium enterprises when flagship exporters underperform abroad. This remains a particularly acute problem as SMEs employ most of the country’s workforce.

And while the administration continues to rely on conglomerates to act as champions of the Korean economy, not all of them have been proactive in embracing innovative sectors. For instance, the steel giant POSCO recently announced plans to retrench in their traditional industries rather than expand into emerging technologies like lithium and biopharmaceuticals. Indeed, it might not be wholly appropriate either for the government to expect companies in established industries to overextend.

Even the government’s approach to increasing the minimum wage seems misaligned with the challenges in the labor market, not necessarily because it imposes an undue burden on the private sector as is often claimed – but because institutions and processes built to adjudicate management-labor disputes remain fragile. If the administration aims to make sure that wage growth keeps pace with increases in domestic productivity, workers need stronger collective bargaining positions.

Structural reform is a daunting task. Nonetheless, these underlying conditions have to be addressed for the economy to experience a truly transformative outcome. President Moon may need to become as radical as he is often accused of being.

Yong Kwon is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

This image originally posted to Flickr by SarahTz and licensed by Wikimedia Commons

By Troy Stangarone

As President Donald Trump announced that he was withdrawing the United States from the Iran nuclear deal and reimposing sanctions on Iran, in perhaps surreal fashion he also announced that U.S. Secretary of State Mike Pompeo would be landing in North Korea in about an hour to discuss the final details for the summit meeting with North Korean leader Kim Jong-un on North Korean denuclearization. Even if unintentionally, President Trump’s comments had the result of linking the two agreements and how the issue of the withdrawal from the Iran nuclear agreement may impact the prospects for reaching an agreement with North Korea on denuclearization.

Shortly afterwards, National Security Advisor John Bolton tried to draw these connections. He said that the withdrawal from the Iran deal was also designed to send a signal to North Korea that the United States wants a real deal on denuclearization, he added that “Another aspect of the withdrawal that was announced today (Tuesday), is to establish positions of strength for the United States.. (with) implications not simply for Iran but for the forthcoming meeting with Kim Jong Un of North Korea; it sends a very clear signal that the United States will not accept an inadequate deal.” Of course, reaching a real deal goes two ways and North Korea will likely take lessons from the U.S. decision to withdraw from the Iran deal.

North Korea studies the United States intensely and will likely want to avoid the challenges the Iran deal faced, as well as the shortcomings of its own prior experiences with the United States. While there are significant reasons that withdrawing from the Iran agreement could make reaching a deal with North Korea more difficult rather than provide the United States with leverage, there are also distinct lessons that North Korea may take from the U.S. withdrawal from the Iran nuclear deal beyond whether an agreement with the United States can be depended on.

When the Iran deal was completed there were bi-partisan concerns over whether the agreement sufficiently addressed Iran’s nuclear program and other issues. Democratic Vice Presidential nominee Tim Kaine was a co-author of the bi-partisan Iran Nuclear Agreement Review Act and pushed to extend sanctions on Iran. North Korea may find the process put forward in the Iran Nuclear Review Act as a stumbling block that it will want to avoid. The Act required the president to certify every 90 days that Iran was incompliance with the Joint Comprehensive Plan of Action (JCPOA). Avoiding a similar North Korea Nuclear Review Act and the potential for a continuous need to have the agreement certified will likely be a North Korean objective in light of the certification processing having served as a means for critics of the agreement to bring it to an end.

However, that does not necessarily mean that North Korea will not want Congressional involvement. Another failing of the Iran nuclear deal was that there was no real Congressional buy-in. As Assistant Secretary of Legislative Affairs at the Department of State wrote to then Congressman Mike Pompeo in 2015, the JCPOA is “not a or an executive agreement, and is not a signed document.” There is also the lesson from the Agreed Framework in the 1990s when North Korea became frustrated over delays in promised heavy fuel oil shipments and Congress’ reluctance to provide funding for the construction of light water reactors.  We should expect North Korea to want more Congressional buy-in to avoid difficulties with U.S. follow through and for any agreement to be more difficult to discard, perhaps as formal treaty to prevent a future president from withdrawing from the deal.

While the JCPOA was not designed to address Iran’s actions in the Middle East or its ballistic missile tests, the narrower scope of the agreement should also demonstrate the need for North Korea to reach a more comprehensive agreement with the United States so disputes on issues other than its nuclear weapons and ballistic missile programs do not undermine support for the core agreement. We are already seeing this in commentary to address North Korea’s chemical and biological weapons, but there will be some issues, such U.S. sanctions on human rights, which the talks may be unlikely to address.

Lastly, both the Agreed Framework and the JCPOA were reached with Democratic administrations and ultimately overturned by Republican administrations. With a general post-Cold War trend of Democrats preferring multilateral solutions and a Republican preference for bilateral agreements, any agreement reached with a Republican president is more likely to remain in place should there be a future Democratic president, additionally incentivizing North Korea to reach a deal with the current Trump administration.

As Americans go into talks with North Korea, they should be prepared for the North Koreans to seek stronger assurances for the longevity of any agreement than existed with the Iran agreement. If that is the case, North Korea could push U.S. negotiators in three areas: (1) to eliminate the prospect of the relatively frequent reviews that Iran faced; (2) that there be Congressional buy-in to sustain any agreement; and (3) that any agreement should be as comprehensive as possible. Without addressing these areas, it may be more difficult to reach a lasting deal.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the author’s alone.