An oil pipeline runs from an on-shore tie-in facility, the production and metering facility. (Photographer: Daniel Acker/Bloomberg)

Why China Won't Cut Off North Korean Oil Lifeline: QuickTake Q&A

(Bloomberg) -- With North Korea advancing its ballistic missile capability, boasting it can strike anywhere in the U.S., President Donald Trump is pressing China to do more to rein in its errant neighbor. Beijing has joined United Nations sanctions aimed at tightening the economic noose on the regime but has held out on the biggest leverage of all: oil. Trump called President Xi Jinping in late November to tell him the time had come for China to cut off all oil exports to North Korea. China supplies most of North Korea’s crude, according to the U.S. Energy Information Administration, but it’s hard to know exactly how much. It hasn’t reported any volumes in its published customs data since 2013.

1. Has China limited the flow of oil to North Korea?

Some. The U.S. proposed a full oil embargo after North Korea tested its sixth and most powerful nuclear bomb in September. The UN Security Council watered down that request at the behest of China and Russia, cutting North Korea’s imports of refined petroleum products to 2 million barrels a year. Overall, the sanctions cut off more than 55 percent of refined petroleum products, representing about 30 percent of the country’s oil intake, according to the U.S.

2. Why won’t China do more?

While China has said it wants North Korea to lay down its nuclear arms, it also desires stability along their shared border, where money and trade flow both ways. China’s representative to the UN has repeated a stance known as the four nos: no regime change, no regime collapse, no accelerated reunification and no military deployment north of the 38th parallel dividing the Korean Peninsula. China is concerned that if oil were cut off -- in a country with often-harsh winters -- it could prompt leader Kim Jong Un to lash out at the U.S., sparking a conflict, or set off internal dissent that precipitates the collapse of his regime. Either outcome could mean a humanitarian disaster, a flood of refugees and possibly U.S. troops on China’s border. “Once a war really happens, the result will be nothing but multiple loss," Chinese Foreign Minister Wang Yi hassaid. "No one can become a winner."

3. Can’t China tell North Korea what to do?

Since Kim and Xi both came to power, ties between the countries have deteriorated, and there’s some doubt over the level of influence Beijing still wields over Pyongyang. North Korea has tested missiles and nuclear bombs despite criticism from its big neighbor, and after Beijing banned coal exports to North Korea in February, the state-run Korean Central News Agency accused its “friendly neighbor” of “dancing to the tune of the U.S.” If Beijing were to cut off oil to Pyongyang and Kim fails to change course, China would have nothing to show for its biggest trump card. And it would demonstrate very publicly to the world that Beijing no longer holds major sway over the regime.

4. What does China’s media say?

“If China completely cuts off the supply of oil to North Korea or even closes the China-North Korea border, it is uncertain whether we can deter Pyongyang from conducting further nuclear tests and missile launches,” the state-run Global Times newspaper said in September. Such action could lead to conflict between China and North Korea that would “transcend any conflict between the U.S. and North Korea, and take center stage on the Korean Peninsula.”

5. How much oil does North Korea use?

Its oil consumption last year was paltry compared with its neighbors. It averaged 15,000 barrels a day, according to an EIA estimate, compared with almost 2.6 million barrels in South Korea and 12.5 million in China. The agency estimates North Korean crude imports at about 10,000 barrels a day, all of which goes to its only operating refinery, located near the Chinese border. China reported sending 6,000 barrels a day of oil products to North Korea last year, according to the EIA. Figures from China’s customs agency show those shipments include fuel oil, gasoline, diesel, jet fuel and lubricants.

6. How might an oil ban affect Kim’s regime?

It’s difficult to say. North Korea has shown in the past that it can endure extremely harsh conditions. In the 1990s, a collapse in food supplies set off a famine that may have killed millions but failed to spur a rebellion. The regime could cut non-military fuel use by about 40 percent via substitution or rationing, according to the Berkeley, California-based Nautilus Institute for Security and Sustainability. North Korea also probably holds stockpiles of fuel.

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