North Korea's "War Economy" ¥2
Estimates that North Korea is earning over 2 trillion yen from troop deployment and arms exports to Russia are shaking the foundation of the UN sanctions regime. With "frontal breakthroughs" rather than "loopholes" becoming the norm, the security order of East Asia itself is being forced to redefine.
── Understand in 3 points ─────────
- • The Korea Institute for National Unification (KINU), a South Korean government-affiliated think tank, estimated that North Korea's revenue from troop deployment and arms exports to Russia could exceed 2 trillion yen (approximately 15 billion USD).
- • North Korea is estimated to have dispatched 10,000 to 15,000 soldiers to the Russia-Ukraine war, with numerous casualties reported in combat zones.
- • North Korea's arms exports to Russia are said to include artillery shells (estimated millions of rounds), short-range ballistic missiles (such as KN-23), and multiple rocket launchers.
── NOW PATTERN ─────────
With Russia, a permanent member of the UN Security Council, forming a military complicity with sanctioned North Korea, a triple vicious cycle has emerged: the "failure of coordination" in the sanctions regime has become structural, accelerating North Korea's "moral hazard" behavior, and deepening the "spiral of conflict" across East Asia.
── Probability and Response ──────
• Base case 55% — Progress in Ukraine ceasefire negotiations, announcement of new military cooperation agreement between Russia and North Korea, North Korea's new missile test launches, expansion of scale of Japan-U.S.-South Korea joint military exercises
• Bear case 30% — Signs of Russia's request for additional troop deployment, satellite images of North Korea's nuclear test preparation activities, sharp rise in public opinion poll results for nuclear armament in South Korea, information leaks regarding new weapons (SLBMs, etc.) between North Korea and Russia
• Bull case 15% — Conclusion of Ukraine ceasefire agreement, resumption of diplomatic contact between Russia and the West, increased diplomatic activity by China towards North Korea, decrease in frequency of North Korean missile launches
📡 Signal — What Happened
Why it matters: Estimates that North Korea is earning over 2 trillion yen from troop deployment and arms exports to Russia are shaking the foundation of the UN sanctions regime. With "frontal breakthroughs" rather than "loopholes" becoming the norm, the security order of East Asia itself is being forced to redefine.
- Revenue Estimate — The Korea Institute for National Unification (KINU), a South Korean government-affiliated think tank, estimated that North Korea's revenue from troop deployment and arms exports to Russia could exceed 2 trillion yen (approximately 15 billion USD).
- Troop Deployment Scale — North Korea is estimated to have dispatched 10,000 to 15,000 soldiers to the Russia-Ukraine war, with numerous casualties reported in combat zones.
- Arms Exports — North Korea's arms exports to Russia are said to include artillery shells (estimated millions of rounds), short-range ballistic missiles (such as KN-23), and multiple rocket launchers.
- Sanctions Effectiveness — UN Security Council sanctions resolutions against North Korea have been adopted successively since 2006, but analysis suggests that revenue from Russia is offsetting the effects of these sanctions.
- Russia's Compensation — It is pointed out that Russia may be providing North Korea with military technology transfers (such as satellite technology, submarine technology, and nuclear delivery vehicle-related technology) in addition to cash revenue.
- Developments at the UN — In March 2024, Russia vetoed the extension of the mandate for the Panel of Experts of the UN Security Council's North Korea sanctions committee, effectively bringing the monitoring mechanism itself to a halt.
- South Korea's Alert — The South Korean government is calling on the international community to be vigilant, stating that North Korea's dramatic improvement in foreign currency earning capability directly leads to the acceleration of nuclear and missile development and regime maintenance.
- U.S. Response — The U.S. has repeatedly condemned North Korea's troop deployment to Russia but has not taken direct military action in the context of the Ukraine war.
- Impact on Japan — The increase in North Korea's military revenue is a factor that directly worsens Japan's security environment and could fund the advancement of ballistic missile technology.
- China's Stance — China has officially remained silent on military cooperation between North Korea and Russia and maintains a passive stance on strengthening UN sanctions.
- North Korea GDP Ratio — Revenue exceeding 2 trillion yen is an extraordinary scale, equivalent to more than half of North Korea's estimated GDP (approximately 3-4 trillion yen), and could fundamentally change the structure of the national economy.
- Historical Context — North Korea's open acquisition of such a large amount of foreign currency through large-scale military transactions between states is said to be on a scale not seen since aid from the Soviet Union during the Cold War.
To understand the current estimate that North Korea's "war economy" has reached a scale of 2 trillion yen, it is necessary to historically review North Korea's economic survival strategy over more than 30 years since the end of the Cold War, and the structural limitations of the international sanctions regime.
During the Cold War, North Korea maintained its regime with abundant economic and military aid from its two major patrons, the Soviet Union and China. However, the collapse of the Soviet Union in 1991 dealt a devastating blow to the North Korean economy. Oil supplies from the Soviet Union ceased, industrial production plummeted, and in the mid-1990s, hundreds of thousands to millions of people are said to have starved to death during the great famine known as the "Arduous March" (Kunan no Kōgun). This experience made the Kim Jong-il regime keenly aware of the need for "self-reliance" (Jiriki Kōsei) and diversification of foreign currency earning methods.
Since the 2000s, North Korea has accelerated its nuclear and missile development while pursuing diverse means of earning foreign currency. It is said to have earned hundreds of millions of dollars annually through both legal and illegal means, including dispatching overseas laborers (to Russia, the Middle East, Africa, etc.), cybercrime (theft of crypto assets, ransomware attacks), manufacturing drugs and counterfeit currency, and selling weapons on the black market. However, these revenues were significantly constrained by successive sanctions based on UN Security Council resolutions—especially the comprehensive sanctions of 2016-2017.
The turning point was Russia's invasion of Ukraine in February 2022. This war presented North Korea with its greatest "business opportunity" since the end of the Cold War. Facing severe shortages of artillery shells and personnel in a prolonged war of attrition, and deepening its international isolation, Russia embarked on military cooperation with North Korea, with whom it had previously kept a distance. The September 2023 summit between Kim Jong Un and Putin (at the Vostochny Cosmodrome in the Russian Far East) was a symbolic moment for this "new alliance."
The implications of this structural transformation are multi-layered. First, North Korea has shifted its primary foreign currency earning method from a traditional "black economy" to "open military transactions between states." This has dramatically reduced the cost of sanctions evasion and expanded the scale of transactions by orders of magnitude. "Goods" such as millions of artillery shells, ballistic missiles, and over 10,000 soldiers are on a scale entirely different from cybercrime or counterfeit currency.
Second, with Russia, a permanent member of the UN Security Council, becoming an "accomplice" in sanctions violations, the legitimacy and effectiveness of the sanctions regime itself have been fundamentally shaken. Russia's veto in March 2024 on extending the mandate of the Panel of Experts for the North Korea sanctions committee was a declaration of intent to prevent even the sanctions monitoring mechanism from functioning. Far from plugging "loopholes" in sanctions, an unprecedented situation is unfolding where a permanent member of the Security Council is actively dismantling the sanctions regime from within.
Third, the compensation North Korea receives is not limited to cash. Military technology transfers from Russia—knowledge regarding satellite launch technology, nuclear submarine technology, and improving the accuracy of intercontinental ballistic missiles (ICBMs)—could qualitatively leapfrog North Korea's military capabilities. This signifies a direct increase in security threats for Japan, South Korea, and the United States.
Historically, it is not uncommon for international sanctions to be nullified by the logic of a "wartime economy." Sanctions are structurally difficult to implement between states with aligned strategic interests, as seen in the League of Nations' sanctions against Italy in the 1930s, mutual aid among Eastern Bloc countries during the Cold War, and economic relations between Iran, Russia, and China in the 2010s. North Korea's current case is positioned as the latest and most extreme example of this historical pattern.
Why "now"? This is because three structural trends are simultaneously at play: the prolonged Ukraine war, the deepening U.S.-China rivalry, and the progression of global multipolarization. Russia has become unhesitant in cooperating with North Korea amidst its full-scale confrontation with the West, China has lost the incentive to strengthen North Korea sanctions in the context of strategic competition with the U.S., and North Korea now holds the most advantageous geopolitical environment since the Cold War. The figure of 2 trillion yen is a product of these structural conditions, suggesting a transition to a new "steady state" rather than a temporary phenomenon.
The delta: North Korea's foreign currency earning structure has expanded by orders of magnitude, from hundreds of millions of dollars annually through cybercrime and black market dealings to over 2 trillion yen through open inter-state transactions. This signifies not the "hollowing out" but the "structural collapse" of the UN sanctions regime, potentially irreversibly altering the security environment of East Asia.
🔍 Reading Between the Lines — What the Reports Aren't Saying
The true intention behind the Korea Institute for National Unification's release of the shocking figure of "over 2 trillion yen" at this timing is to provide domestic legitimacy for South Korea's own defense budget increase and discussions on independent nuclear deterrence. More important than the accuracy of the figure itself is that this estimate functions as a political message: "sanctions are dead." Furthermore, the specific content of military technology Russia is providing to North Korea—especially nuclear warhead miniaturization and re-entry vehicle technology—is likely more serious than publicly disclosed, and what intelligence agencies worldwide are most concerned about is the flow of "technology" rather than "money."
NOW PATTERN
Spiral of Conflict × Failure of Coordination × Moral Hazard
With Russia, a permanent member of the UN Security Council, forming a military complicity with sanctioned North Korea, a triple vicious cycle has emerged: the "failure of coordination" in the sanctions regime has become structural, accelerating North Korea's "moral hazard" behavior, and deepening the "spiral of conflict" across East Asia.
Intersection of Dynamics
The three dynamics of "failure of coordination," "moral hazard," and "spiral of conflict" are not independent issues but form a vicious cycle that mutually reinforces itself. It is at this intersection that the inherent danger of the current news lies.
First, the "failure of coordination" manifesting as Russia's withdrawal from sanctions enabled North Korea's "moral hazard." During the period when the sanctions regime was functioning, North Korea's foreign currency acquisition always involved risks and costs, imposing natural constraints on the pace of military development. However, with Russia openly violating sanctions and even destroying the sanctions monitoring mechanism, North Korea gained unprecedented "freedom." An environment where military revenue can be obtained without the cost of sanctions signifies the maximization of moral hazard for the Kim Jong Un regime.
Next, as North Korea dramatically improves its military capabilities due to moral hazard, the "spiral of conflict" accelerates. The cycle of North Korea's missile capability improvement → Japan and South Korea's defense strengthening → North Korea's further military expansion will spin faster and more intensely, fueled by 2 trillion yen in military funds.
The intensification of this "spiral of conflict" then leads to further "failures of coordination." The more the regional security environment deteriorates, the more difficult it becomes for each country to prioritize its own interests and engage in multilateral cooperative actions—such as unified implementation of sanctions or seeking diplomatic solutions. China will further ease pressure on North Korea in response to the strengthening military ties between Japan, the U.S., and South Korea, and Russia will further deepen cooperation with North Korea to continue the war.
This triple vicious cycle has a self-stabilizing nature. In other words, unless there is strong external intervention, this structure will only strengthen over time. While the end of the Ukraine war might break this structure, the military ties formed between North Korea and Russia, and the technology and funds North Korea has acquired, will not revert. The international community is facing not a temporary malfunction of the sanctions regime, but potentially the beginning of a structural collapse of the non-proliferation and sanctions regime built after the Cold War.
📚 Patterns of History
1935-1936: Italy's Invasion of Ethiopia and the Failure of League of Nations Sanctions
Key participants in the sanctions regime (Britain and France) prioritized their own interests, avoiding effective sanctions (oil embargo), which rendered the sanctions hollow. Italy's aggression could not be stopped.
Structural Similarity to the Present: Sanctions do not function without the unified will of major powers. If even one country provides a significant "loophole," the entire sanctions regime collapses. The failure of League of Nations sanctions paved the way for World War II.
1980s: North Korea's Arms Exports during the Iran-Iraq War
North Korea sold weapons to both sides of the Iran-Iraq War, utilizing the conflict as an opportunity to earn foreign currency. The export of Scud missiles to Iran became the origin of North Korea's ballistic missile export business.
Structural Similarity to the Present: North Korea has historically possessed the ability to convert other countries' wars into its own economic and military gain. The current Russia-Ukraine war is the latest iteration of this same pattern.
2003-2015: Iran's Nuclear Development and the Long Process of Sanctions and Negotiations
Multilateral sanctions against Iran had limited effectiveness because China and Russia partially circumvented them through trade. Ultimately, sanctions alone could not halt nuclear development, leading to a shift to diplomatic negotiations (JCPOA).
Structural Similarity to the Present: Sanctions can serve as a "lever" for diplomatic negotiations, but it is difficult to fundamentally change the behavior of a nuclear-developing state through sanctions alone. If the interests of major powers diverge, the effectiveness of sanctions further diminishes.
Since 2014: Western Sanctions Following Russia's Annexation of Crimea
Western sanctions against Russia had limited effectiveness as China, India, and Middle Eastern countries maintained and expanded trade with Russia. Russia adapted its economy even under sanctions.
Structural Similarity to the Present: In a globalized economy, sanctions that do not include some major economic powers have limited effectiveness. Sanctioned countries possess the ability to find alternative economic partners and adapt.
1950-1953: Intervention of the Chinese People's Volunteer Army in the Korean War
China conducted a large-scale military intervention under the name of "volunteer forces," disregarding international deterrence and altering the military balance on the Korean Peninsula. This is an example where direct intervention by a major power fundamentally changed the conflict's dynamics.
Structural Similarity to the Present: The actions of major powers disregarding international norms to enhance the military capabilities of smaller states for strategic interests have been historically repeated. Russia's current support for North Korea is a variation of this same structure.
Patterns Revealed by History
The most important lessons revealed by historical patterns are threefold. First, the effectiveness of an international sanctions regime is determined by its "weakest link." From the League of Nations' sanctions against Italy in 1935 to the sanctions against Russia since 2014, sanctions are structurally ineffective if some major powers are uncooperative. In the current case, the problem is even more severe because that "weak link" is Russia, a permanent member of the Security Council.
Second, North Korea has a historical track record of "crisis opportunism," converting other countries' conflicts into its own benefit. From arms sales during the Iran-Iraq War in the 1980s to the current deployment of troops and supply of weapons to Russia in the Ukraine war, this pattern has been repeated for over 40 years. For North Korea, war is not a "disaster" but a "business opportunity."
Third, sanctions alone cannot change the behavior of a nuclear-developing state. As the case of Iran shows, sanctions can ultimately only serve as a "lever" to encourage diplomatic compromise, and the effectiveness of that "lever" depends on the unity of major powers. In the current international environment, that unity is collapsing. The accumulation of these patterns indicates that traditional sanctions approaches have reached their limits, suggesting the need for fundamentally different approaches.
🔮 Next Scenarios
The Ukraine war transitions to some form of ceasefire or frozen conflict by 2026, but military and economic relations between North Korea and Russia are maintained. Although Russia's demand for artillery shells and personnel decreases, military technology cooperation based on the Comprehensive Strategic Partnership Treaty (concluded in June 2024) between the two countries continues. North Korea has already secured most of its 2 trillion yen in revenue and will invest these funds into nuclear and missile development and regime strengthening. New sanctions resolutions at the UN Security Council remain impossible due to vetoes by Russia (and China), and the hollowing out of the sanctions regime becomes entrenched. The U.S. responds by strengthening its own sanctions and secondary sanctions (secondary sanctions on third countries), but its means of stopping direct transactions with Russia are limited. North Korea uses the acquired funds and technology to improve the accuracy of ICBM technology, expand the deployment of solid-fuel missiles, and advance the practical application of tactical nuclear weapons. Multiple test launches of new missiles will occur between 2026 and 2027, but the 7th nuclear test may be reserved as a diplomatic card. Japan, the U.S., and South Korea will further institutionalize trilateral security cooperation, strengthening missile defense and information sharing, but will not find effective countermeasures for the fundamental problem—the collapse of the sanctions regime. The security environment in East Asia will remain in a state of "managed instability."
Implications for Investment/Action: Progress in Ukraine ceasefire negotiations, announcement of new military cooperation agreement between Russia and North Korea, North Korea's new missile test launches, expansion of scale of Japan-U.S.-South Korea joint military exercises
A scenario where the Ukraine war further prolongs and intensifies, deepening Russia's dependence on North Korea. Russia requests the dispatch of additional North Korean soldiers, with troop deployment potentially exceeding 20,000. Arms supplies also expand, and North Korea's revenue could further increase to a scale of 3 trillion yen. In a more serious development, Russia may transfer nuclear-related technologies to North Korea—nuclear warhead miniaturization, re-entry vehicle technology, and submarine-launched ballistic missile (SLBM) technology. If this materializes, North Korea's nuclear capabilities would qualitatively leapfrog, acquiring ICBM capabilities that can reliably strike the U.S. mainland. The Kim Jong Un regime deepens its military confidence, increasing the likelihood of forcing through a 7th nuclear test. Simultaneously, arguments for independent nuclear armament gain political mainstream status in South Korea, and nuclear sharing is seriously debated in Japan. East Asia faces a "nuclear domino" crisis, shaking the foundation of the NPT regime. Furthermore, there is concern that North Korea may repatriate soldiers who have gained "combat experience" in Russia and utilize them for combat preparations on the Korean Peninsula. Military tensions on the Korean Peninsula reach their highest level since the Cold War, and the risk of accidental clashes significantly increases.
Implications for Investment/Action: Signs of Russia's request for additional troop deployment, satellite images of North Korea's nuclear test preparation activities, sharp rise in public opinion poll results for nuclear armament in South Korea, information leaks regarding new weapons (SLBMs, etc.) between North Korea and Russia
A scenario where the Ukraine war reaches a ceasefire agreement in the first half of 2026, and Russia's military demand for North Korea significantly decreases. The ceasefire creates diplomatic room for the international community to demand Russia reduce military cooperation with North Korea. Russia may also prioritize post-war reconstruction and normalization of relations with the West, potentially gradually reducing military transactions with North Korea. China seizes this opportunity to try and restore its influence over North Korea. For China, a situation where North Korea is overly dependent on Russia is geopolitically inconvenient, and it may attempt a "grand bargain," seeking to curb nuclear and missile development in exchange for increased economic aid. In an even more optimistic development, Russia's desire to restore its international standing after the war might enable a partial revival of the North Korea sanctions regime. The re-establishment of the Panel of Experts on sanctions at the Security Council or the initiation of negotiations for new sanctions resolutions could become possible. However, even in this scenario, the 2 trillion yen in funds and military technology already acquired by North Korea are irrecoverable, and the improvement in nuclear and missile capabilities is irreversible. Even in the best-case scenario, while the "flow" of North Korea's military revenue can be stopped, the impact of the already accumulated "stock" will remain for a long time. The security environment in East Asia returning to pre-2022 levels is not realistic even in this scenario.
Implications for Investment/Action: Conclusion of Ukraine ceasefire agreement, resumption of diplomatic contact between Russia and the West, increased diplomatic activity by China towards North Korea, decrease in frequency of North Korean missile launches
Key Triggers to Watch
- Substantive progress in Ukraine ceasefire negotiations or conclusion of an agreement: April–December 2026
- Execution of North Korea's 7th nuclear test or detection of preparation activities: Within 2026
- Announcement of an additional military cooperation agreement between Russia and North Korea: March–September 2026
- Policy movements regarding independent nuclear armament in South Korea (e.g., presidential candidates making it a campaign promise): 2026–2027
- Submission and voting on a new resolution regarding North Korea sanctions at the UN Security Council: June 2026–March 2027
🔄 Tracking Loop
Next Trigger: Scheduled Russia-North Korea summit (or high-level talks) in June 2026 — a critical event to ascertain the scope of additional military cooperation and the depth of technology transfer.
Continuation of this Pattern: Tracking Theme: Deepening of the North Korea-Russia Military-Economic Alliance — Next focus is the outcome of Ukraine ceasefire negotiations and its impact on the sustainability of North Korea's military revenue (late 2026).
🎯 Oracle Declaration
Prediction Question: Will North Korea conduct its 7th nuclear test by December 31, 2026?
Judgment Deadline: 2026-12-31 | Judgment Criteria: Whether North Korea is judged to have conducted a nuclear test (underground nuclear explosion) by December 31, 2026, based on seismic observation data from the CTBTO (Comprehensive Nuclear-Test-Ban Treaty Organization) or official confirmation from U.S. and South Korean intelligence agencies.
How do you read this? Participate in prediction →
