India-DPRK trade expanding

According to Forbes:

Last year India exported roughly $1 billion to North Korea, up from an average of barely $100 million in the middle of the past decade, reports the Confederation of Indian Industry, a trade organization–most of that in refined petroleum products. The trade group says that North Korea’s exports to India were a minuscule $57 million, including silver and auto parts. (South Korean trade figures suggest India’s exports are much lower.)

The commercial tie has no deep historical roots and is curious, to say the least, given Pyongyang’s closeness with China, India’s commercial rival, and its connection to the A.Q. Khan nuclear network in Pakistan, India’s enemy.

North Korea needs oil to maintain power plants and to keep its outsize military on the move. It apparently has enough hard- currency reserve from its murky export trade to buy on the spot market. India, for its part, has ramped up refining but gotten ahead of domestic demand. Further, by keeping an artificial lid on pump prices until recently, Indian policy encouraged these oil sector producers to look for clients overseas. “India is the largest exporter of refined products east of the Suez [meaning the Middle East and Asia],” says Fereidun Fesharaki, chairman of Facts Global Energy in Singapore. A lot of enhanced supply came online in 2009, mostly from Reliance Industries, which has the world’s largest refinery, and the Essar Group, the Mumbai steel and energy giant. At current usage and demand “India needs 15 years of demand to absorb this current supply,” he adds.

Until June the New Delhi government kept a cap on domestic gasoline prices, running up a $10 billion subsidy bill, or roughly 7% of its budget. While state-owned companies were compensated for their losses, those in the private sector were on their own, causing them to look for other markets, especially since the price for crude has doubled, to $78 per barrel since 2004. “Their incentive is [to find] who in the world is desperate enough to take the products, and it’s usually Iran or North Korea,” says Fesharaki.

Some North Korea watchers are caught off guard. “I was flabbergasted by the increase in trade,” says Stephan Haggard, director of the Korea-Pacific Program at UC, San Diego. “North Korea is basically engaged in close to barter trade.” No one seems more surprised than Pratap Singh, India’s ambassador to Pyongyang, who says he has no idea of trade volume because the North Koreans won’t supply credible data, much less working phone lines. “How did you manage to get through?” he asks a reporter.

Like other oil refiners, neither Reliance nor Essar exports fuel to North Korea directly. That’s too much of a risk politically (even though this trade isn’t barred under current UN sanctions) and economically, as Pyongyang has been known to slip on its payments. Instead, the fuel is sold through a network of traders and banks in Dubai and elsewhere. Trade data nevertheless record the origin of the refined petro goods.

Curiously, both New Delhi and the U.S. State Department, which have bumped along in relations complicated by India’s own nuclear development, show no alarm. A spokesman for India’s Ministry of Foreign Affairs says all international strictures are observed and nothing sinister is at hand. Washington won’t comment without verifying the data.

Perhaps a little more attention is in order since India is selling more than mere oil to North Korea. Last year, according to Indian trade data, India also exported $2 million in goods in a category called “nuclear reactors, boilers, machinery and mechanical appliances”–most likely water pumps, computer data storage units, ball bearings and machine tools. Could they be used to maintain a nuke plant in some way? Maybe.

“North Korea, over the years, has attained skills to disguise their trade activities and also to utilize materials they have for other purposes,” says Jennifer Lee, a research analyst at the Peterson Institute for International Economics in Washington. “Countries need to be especially careful in what they export to North Korea.”

Read the full story here:
Look Who’s Helping North Korea
Forbes
Megha Bahree
7/22/2010
(Magazine date: 8/9/2010)

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