With US markets going into full-fledged convulsions thanks to disheartening economic data out of China, a looming government shutdown, renewed fears about a "no deal" Brexit and Dow component JNJ's worst day in 16 years, strategists can add one more disconcerting development to their list of woes. Citing a "top secret" intelligence report, NBC News said Friday that the US suspects that North Korea is still evading US sanctions by secretly transferring oil at sea.
While this isn't exactly news - the US back in September reportedly formed an international posse to crack down on these illegal oil sales - it certainly doesn't bode well for the stalled planning for a second summit between President Trump and North Korean leader Kim Jong Un. It also raises questions about North Korea's intentions as doubts persist about Pyongyang's commitment to denuclearization. Negotiations hit an impasse over the summer as Pyongyang insisted that the US commit to a gradual schedule of removal for its economic sanctions, while Washington has insisted that the North must completely denuclearize first - something few intelligence analysts expect it to do.
Specifically, the intel report examined how the North has changed up its tactics and moved these transfers out of the East China Sea and into "more logistically challenging waters to the North and South" as the US-led posse - Australia, Britain, Canada, France, Japan, South Korea and New Zealand are also participating - has made the transfers more difficult by its presence alone (they typically don't try to board or detain ships caught in the act, instead allowing them to flee). The Koreans are also using smaller ships to evade detection. The US has been monitoring the smuggling activity since October 2017, when it began surveillance flights after both the UN and the US ramped up sanctions that summer following the most intense phase of the North Korean nuclear- and missile-testing crisis.
The North Koreans are also resorting to smaller vessels to avoid recognition by the coalition's warships and surveillance aircraft, the officials said. The assessment found that while attempts to transfer oil have not decreased, the coalition presence has forced North Korea out of the East China Sea and into more logistically challenging areas to the north and south. That shift could ultimately affect the pace and number of the ship-to-ship transfers, raising the cost of smuggling for North Korea, according to the three U.S. officials.
A U.S. defense official said the U.S. began surveillance flights over the East China Sea to disrupt these illicit transfers on Oct. 19, 2017. Since then, the U.S. has conducted more than 300 surveillance flights. Allied nations began flights on April 30 of this year, and have flown more than 200 surveillance flights to date.
Since October 2017, there have been 30 instances when smugglers halted ship-to-ship transfers when observed by coalition naval forces at sea, according to a U.S. defense official.
The U.S. Pacific Command assessment, labeled "Top Secret," found that the presence of warships and surveillance aircraft deployed by an eight-nation coalition since September has forced North Korea to adjust its tactics at sea, including transferring oil further away from the Korean Peninsula and often in other countries' territorial waters.
What's almost worse than the smuggling itself is the fact that the North Korean ships participating in the transfers apparently have never heard of the phrase "act natural", as ships have repeatedly been observed to drop whatever they were doing and flee after spotting Western monitors.
"What's equally as powerful as boarding a ship is taking a picture of the hull, getting information about the ship involved in the illegal activity, and that allows you to get to the insurers, the networks, the people financing the operation, and so we've been successful with a camera as much as we would be if we were to proceed to boardings."
Before the posse was formed in September, incidences of North Korean smuggling (often abetted by China and Russia) had been on the rise.
A leaked report by U.N. sanctions experts in August, based on U.S. intelligence, found the number of transfers surging, with vessels turning off the transponders that show a ship's geographic location. Between January and May, North Korean ships made 89 deliveries of refined petroleum to the country's ports, U.N. Ambassador Nikki Haley said in July.
Which brings us the bigger issue here: Despite opting to support tighter UN sanctions against North Korea last year, China and Russia have continued to supply North Korea with badly needed oil. Some of the ships that have been tracked by US monitors have helped move North Korean coal to Russian ports. Though the intelligence analysts say their surveillance regime has helped them crack down on the support networks for these ships - like insurers and Western companies that need to abide by the sanctions.
When confronted about their complicity in the sanctions violations, Russia and China have insisted that they abide by the UN rules. Yet analysts say evidence of their deception is easy to see. Monitors of energy prices in North Korea show that the increased sanctions have had virtually no impact. Meaning that the sanctions impressed upon North Korea by President Trump have had virtually no effect.
Analysts and firms that track North Korean shipping data say there are numerous signs that the regime continues to use deception to move coal out of North Korean ports for sale and to obtain oil through ship-to-ship transfers at sea.
"I think they're certainly trying to keep apace with the sanctions regime," said Lucas Kuo, an analyst at C4ADS, a non-profit research organization that uses data to track illicit networks.
Two ships identified in a report by a U.N. panel earlier this year for smuggling coal to Russian ports, the Sky Angel and the Sky Lady, continue to operate and recently made port visits to Japan — even obtaining insurance paperwork, according to maritime and shipping sites.
The Sky Angel pulled into the Japanese port of Muroran in July, and Sky Lady made a port of call at Tomakomai on Tuesday.
"The fact that they're still able to acquire this insurance at least raises some questions," Kuo said.
And if Korean energy products have managed to slip through the sanctions so easily, what does that say about other Korean exports, like seafood?
The upshot here is that while we're sure Trump will largely disregard these findings as he seeks a major diplomatic "win" by becoming the president who opens up North Korea, we'll likely be hearing more soon about how these violations are Russia's and China's fault.