Gas prices in North Korea jump on rumors of possible embargo

Kang Mi Jin; Kim Ga Young  |  2017-09-15 11:34
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At the beginning of this month, gasoline prices in North Koreas capital city of Pyongyang began to sharply rise. Now, oil prices in other regions of the country have started climbing as well. This news was ascertained and delivered to Daily NK on September 7 by inside informants on the ground in North Korea.

After the UN Security Council adopted another round of international sanctions against North Korea (Resolution 2371) on August 5, there were no major price fluctuations. However, oil prices did start to rise in certain regions after the North conducted its sixth nuclear test earlier this month.  

According to the inside sources, one kilogram of gasoline rose from KPW 18,000 in Pyongyang at the beginning of September to KPW 23,000 on September 7th. Diesel prices also exceeded the KPW 12,000 mark.  

Up until the fourth week of August, diesel was selling for KPW 12,800 per kilogram in Pyongyang. The cost of diesel actually fell in August. At the beginning of the month, it sold for about KPW 15,100.  But then it started to climb again towards the end of the month, jumping to KPW 14,100 at the end of the month, and then surpassing KPW 20,000 within a week after that.  

Asked about these quickly elevating prices during a phone conversation with Daily NK  a source in Pyongyang said, Gasoline prices started to rise at the end of August to KPW 18,000, and then jumped up to KPW 20,000 at the beginning of September. As a result of this increase, motorbikes disappeared from the streets of Pyongyang. The presence of taxis and cars is down by at least half. The streets are totally empty.
  
Some autobike drivers are concerned because the gas price jump will make it harder for them to make a living transporting people and goods, the source added. The possibility is large that related industries will also be hurt by the price increase. 

There are signs that the gasoline price increase is also affecting areas far from the capital city, such as Hyesan City, Ryanggang Province. A source from that region said, The cost of gasoline in Hyesan increased to KPW 21,600 per kilogram. As recently as the third week of August, the price was at a mere KPW 12,050. Towards the end of the month, it climbed to KPW 14,400, and then kept climbing in September.  

The source added, Gas prices are also rising in rural areas of the country. Some areas feature gas prices approaching the price in Hyesan, and others have surpassed that. Merchants are baffled because the price dipped and then rose suddenly. 

Rumors of a potential oil embargo

There are a few reasons that might explain the increase. First, it is possible that the authorities are controlling the supply. The ongoing debate in the UN Security Council includes the possibility of levying an oil embargo, and it is therefore possible that the regime is aiming to increase its stock of reserves by restricting the supply to ordinary residents. There would be a precedent for this. 

In the past, during construction of state facilities and preparations for large-scale events, the regime has instituted unofficial measures that restrict the supply of oil. Normally, this means curtailing the flow of gasoline to regional state-operated gas stations that sell gas to ordinary residents. Other times, it involves Ministry of Peoples Security officers (the police)enforcing controls on privately-run (non-state) gas stations.  

However, there is no direct evidence yet available indicating that the authorities have instituted such a measure to reduce supply to private or public gas stations. 

Instead, it appears as it market forces responded to the rumor that the next UNSC Resolution (i.e., 2375) would include a limit on imports of oil into the country. An increasing proportion of oil merchants are acting on their own volition, it appears, to restrict supply.

As the rumor about a possible suspension of oil imports swirls around, the gasoline merchants have drastically reduced supply, said the Ryanggang Province source. This appears to be a natural market reaction rather than a measure enforced by the authorities.  

Another factor could also be at play. Ever since the recent nuclear test, smuggling routes between North Korea and China have become paralyzed. Less oil availability from these unofficial sources could also have the effect of driving prices up.  

The sources say that the amount of oil smuggled into the country to date has been significant. This amount is in addition to the oil that comes from pipelines originating in China and Russia and brought into North Korean ports via ships. This smuggled oil gets carried into North Korea from China on freight trains and through other methods. 

Ever since the adoption of United Nations Security Council Resolution 2371, crackdowns and controls over Sino-Korean smuggling have strengthened. The oil that had been transported through these smuggling routes into North Korea has thus been affected, and it appears that this sharply cut the supply of oil into the country. Using sources with knowledge of the matter in China, Daily NK recently reported on this trend of Chinese authorities increasingly targeting smugglers in the border area. 

Some have raised the concern that increasing oil prices will most likely affect the price of essential items like rice and corn. There are no signs of a large scale knock-on effect at the moment, but corn prices have started to rise in certain regions, such as Hyesan. 
 
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2017.09.27
Won Pyongyang Sinuiju Hyesan
Exchange Rate 8,100 8,125 8,240
Rice Price 6,100 6,085 6,100