Publication: Eurasia Daily Monitor Volume: 2 Issue: 64

Moscow has revealed possible plans to supply crude oil to Pyongyang, although expanded cooperation and trade ties between Russia and North Korea remain a distant vision.

In March, Gennady Fadeyev, head of the state-run Russian Railways company (RZD) mentioned that Russia is considering oil deliveries to North Korea by rail. He indicated that unnamed Russian “investors” are negotiating the deal. “Plans are being considered to build a railroad line joining Khasan and an oil refinery in the North Korean port of Rajin,” Fadeyev said (RIA-Novosti, March 22).

However, no financial details or actual quantities of planned Russian crude supplies to North Korea have been announced so far. Russia currently exports limited amounts of oil products to North Korea, but supplies are not regular. Instead, the trade consists of a series of ad hoc deals, according to Russia’s Economic Development and Trade Ministry.

The RZD, formerly the Russian Railways Ministry, has long wanted to extend the Trans-Siberian Railroad across the Korean peninsula. In August 2001, Moscow and Pyongyang said in a joint statement that their countries would cooperate closely to create a railroad transport corridor linking the Koreas with Russia and Europe.

In 2000, the leaders of the two Koreas shared an ambitious vision of an “iron silk road” connecting the divided Korean Peninsula with Europe by rail for the first time in 50 years. Work began to reconnect a severed portion of a rail line that once stretched the full length of Korea, but the project was suspended in 2001.

Fadeyev stated that a deal to extend the Trans-Siberian Railroad across the Korean peninsula to connect it to the South Korean railway system via North Korea currently remains “under discussion.” “We completed a 500-million ruble ($18 million) feasibility study” with two variants for linking the Russian and North Korean railways, Fadeyev said (RIA-Novosti, March 22).

The would-be “iron silk road” could cut the cost of exporting South Korean goods to Europe by half. But North Korea’s outdated railway system, mostly built by Japan before 1945 or with Soviet assistance in the 1950s, must first be modernized.

Moscow has said it might be willing to repay its nearly $2 billion debt to Seoul by investing in the modernization of North Korea’s energy system and by constructing Korea’s North-South railway, which would then be connected with Russia’s Trans-Siberian railway.

In recent years Pyongyang has indicated a willingness to get involved in high-profile projects. In 1997, North Korea reportedly agreed to carry a pipeline exporting Russian natural gas from Siberia to South Korea and onward to Japan. Pyongyang’s agreement was vital to the 5,000-kilometer project, which could provide the North with energy and transportation fees. However, the gas pipeline project still remains on the drawing board.

Russia, which borders North Korea thanks to a narrow strip of land near Vladivostok, sharply downgraded its ties with Pyongyang in the 1990s. In turn, there has been an increase in Russian economic ties with South Korea.

Moscow and Pyongyang have signed a new bilateral treaty to replace an outmoded Soviet-era accord in place since 1961. However, bilateral trade turnover has been below $100 million in the past few years, down from some $600 million in 1992. The decline has been blamed mainly on North Korea’s economic crisis and its unpaid debts to Russia.

Russian officials argue that Pyongyang’s limited financial resources, bureaucratic obstacles in the reclusive communist state, and its undeveloped legal and banking systems further hinder economic cooperation.

Russia exports timber, coal, machinery, ferrous metals, petroleum products, and chemical fertilizers, as well as fishery products. North Korean shipments of consumer goods have dropped, and now Pyongyang mainly exports its cheap labor resources to Russia. With thousands of North Korean workers employed in Russia’s timber industry, labor resources amount to some 80-90% of North Korean exports to Russia.

In 2004, bilateral trade turnover amounted to some $140 million, according to Russian official estimates. The Russia-North Korea exports-to-imports ratio has changed from 9:1 in 1995 to roughly 2:1 now.

Furthermore, Pyongyang’s Soviet-era 4 billion convertible ruble debt to Moscow is currently estimated at anywhere between $2 billion and $7 billion, due to disagreements over proper exchange rates for the Soviet-era currencies. Russian officials insist that Moscow will not forgive the debt. The most recent talks on the issue were held back in 2001.

In the meantime, Moscow has been keen to sustain its political role on the Korean Peninsula. The Kremlin has repeatedly offered to mediate in the Korean standoff. According to Russian President Vladimir Putin, Russia is ready to host “any meetings and talks, to help in any form so as to normalize the situation” around North Korea.

There have been media claims that a second intra-Korean summit could take place in Moscow in May on the sidelines of Russia’s World War II victory celebration, as reportedly both President Roh Moo-hyun and Kim Jong-il have been invited to attend.

In September 2004, President Putin and President Roh signed a 10-point joint declaration, pledging to support a nuclear-free zone on the Korean Peninsula and block the proliferation of weapons of mass destruction. The Russian leader said Moscow would continue to support efforts toward closer ties between North Korea and South Korea.

Despite Moscow’s official pronouncements, there has been little actual progress in railroad or pipeline projects across the Korean peninsula. Whether Fadayev’s optimistic plans will be implemented remains to be seen.