North Korea's 2 Trillion Yen War Economy
Estimates that North Korea is earning over ¥2 trillion from dispatching troops and exporting weapons to Russia signify the de facto collapse of the UN sanctions regime. The war in Ukraine is becoming the largest source of funding for North Korea's nuclear and missile development, fundamentally altering the security environment in East Asia.
── Understand in 3 points ─────────
- • A South Korean government-affiliated think tank estimates North Korea's income from dispatching troops and exporting weapons to Russia to be over ¥2 trillion (over approximately $14 billion).
- • North Korea is dispatching approximately 10,000 to 12,000 soldiers to Russia starting in the latter half of 2024, to participate in combat on the Ukrainian front, including in the Kursk direction.
- • North Korea is exporting large quantities of weapons and ammunition to Russia, including 152mm artillery shells, 122mm rockets, and short-range ballistic missiles (KN-23/KN-25 series).
── NOW PATTERN ─────────
North Korea's "war economy," capitalizing on the crisis of the war in Ukraine, is internally collapsing the cooperative mechanism of the international sanctions regime and accelerating the spiral of conflict in East Asia.
── Probability and Response ──────
• Base case 55% — Continued stalemate on the Ukrainian front, stalled US-Russia ceasefire negotiations, reports of additional North Korean troop deployments, sustained pace of Russian ammunition consumption.
• Bull case 15% — Concrete progress in US-Russia ceasefire negotiations, decrease in combat intensity on the Ukrainian front, signs of reduced Russian ammunition imports, Putin's diplomatic softening.
• Bear case 30% — Evidence of advanced military technology transfer from Russia to North Korea, North Korea's test launch of a new ICBM or nuclear test, South Korea's decision to provide lethal weapons to Ukraine, rapid escalation of military tensions on the Korean Peninsula.
📡 THE SIGNAL — What Happened
Why it matters: Estimates that North Korea is earning over ¥2 trillion from dispatching troops and exporting weapons to Russia signify the de facto collapse of the UN sanctions regime. The war in Ukraine is becoming the largest source of funding for North Korea's nuclear and missile development, fundamentally altering the security environment in East Asia.
- Estimated Income — A South Korean government-affiliated think tank estimates North Korea's income from dispatching troops and exporting weapons to Russia to be over ¥2 trillion (over approximately $14 billion).
- Troop Deployment Scale — North Korea is dispatching approximately 10,000 to 12,000 soldiers to Russia starting in the latter half of 2024, to participate in combat on the Ukrainian front, including in the Kursk direction.
- Weapon Exports — North Korea is exporting large quantities of weapons and ammunition to Russia, including 152mm artillery shells, 122mm rockets, and short-range ballistic missiles (KN-23/KN-25 series).
- Impact on Sanctions — A warning that income from Russia has reached a scale that offsets the effects of economic sanctions imposed on North Korea by the international community.
- Quid Pro Quo Structure — North Korea is likely receiving not only cash income from Russia but also military technology transfers (satellite, submarine, ICBM-related technologies) and in-kind supplies of oil and food.
- UN Sanctions — The UN Security Council's Panel of Experts on North Korea sanctions expired in April 2024 and was not renewed due to Russia's veto, rendering it non-functional.
- North Korea GDP Comparison — North Korea's annual GDP is estimated at $30-40 billion (Bank of Korea estimate), making the income of over ¥2 trillion an extraordinary sum, equivalent to 30-50% of its GDP.
- South Korea's Response — The South Korean government has characterized North Korea's military cooperation with Russia as a "grave challenge to the international order" and is considering countermeasures, including providing weapons to Ukraine.
- Violation of International Law — Both North Korea's troop deployments and weapon exports clearly violate UN Security Council resolutions, but effective countermeasures are difficult because Russia is a permanent member of the Security Council.
- Casualties — Ukrainian authorities estimate North Korean military casualties to be in the thousands. North Korea is reportedly indicating its intention to send additional troops.
- Russia-DPRK Treaty — In June 2024, President Putin and Chairman Kim Jong Un signed the "Comprehensive Strategic Partnership Treaty," which includes a mutual defense clause akin to a military alliance.
- Ammunition Export Volume — The cumulative volume of artillery shells and ammunition exported from North Korea to Russia is estimated to be over 5 million rounds, replenishing a significant portion of Russia's monthly consumption.
The estimate that North Korea is earning over ¥2 trillion from dispatching troops and exporting weapons to Russia is an indicator of a historical turning point, demonstrating the structural collapse of the international non-proliferation and sanctions regime built over more than 30 years since the Cold War.
To understand the root of this situation, one must first review North Korea's economic and sanctions history. With the collapse of the Soviet Union and China's market liberalization in the 1990s, North Korea effectively lost its largest patron during the Cold War. The "Arduous March" (苦難の行軍), a great famine in the mid-1990s, led to an estimated hundreds of thousands of deaths, and the economy suffered devastating blows. To survive this extreme situation, the Kim Jong Il regime accelerated nuclear and missile development as a "trump card for regime survival." Following its first nuclear test in 2006, the UN Security Council gradually strengthened sanctions, and Resolution 2397 in 2017 imposed comprehensive sanctions aimed at cutting off 90% of North Korea's export revenue.
However, the sanctions regime had inherent structural weaknesses. First, China and Russia, as permanent members of the Security Council, were reluctant to fully implement sanctions and maintained economic ties with North Korea under the table. Second, North Korea diversified its illicit means of acquiring foreign currency, including cryptocurrency theft (hacking by the Lazarus Group), counterfeit currency, illegal drugs, and ship-to-ship transfers (瀬取り). Third, the UN Panel of Experts, tasked with verifying and monitoring the effectiveness of sanctions, consistently lacked sufficient authority and resources.
Russia's full-scale invasion of Ukraine in February 2022 created a decisive crack in this fragile sanctions regime. As the war dragged on, Russia faced a severe ammunition shortage and turned its attention to North Korea's vast stockpiles. For North Korea, this was a golden opportunity. While its Cold War-era Soviet-standard artillery shells and ammunition were aging, Russia's demand prioritized quantity over quality, transforming North Korea's inventory into "strategic assets" overnight.
The September 2023 Kim Jong Un-Putin summit (at Russia's Vostochny Cosmodrome in the Far East) symbolized the full-scale commencement of this military cooperation. At the Pyongyang summit in June 2024, the "Comprehensive Strategic Partnership Treaty" was signed, effectively reviving a military alliance. This marked the re-establishment of a military alliance-like relationship for the first time in approximately 60 years, since the 1961 Sino-Soviet-DPRK Treaty of Friendship.
Why has the figure of ¥2 trillion come to light at this particular time? It is because North Korea's military contribution to Russia has entered a new phase, both quantitatively and qualitatively. Initially focused on exporting artillery shells and ammunition, it expanded to dispatching 10,000 troops from the latter half of 2024, and further escalated to providing short-range ballistic missiles. The deployment of combatants is a new channel for North Korea to acquire foreign currency, while also providing a military dividend in the form of combat experience. North Korean soldiers are experiencing the realities of modern warfare on the Ukrainian front—drone warfare, electronic warfare, urban warfare—and this experience will qualitatively enhance the capabilities of the North Korean military in the event of a contingency on the Korean Peninsula.
Historically, this structure is a resurgence of the "proxy war economy" of the Cold War era. In the Korean War of the 1950s, China dispatched "volunteer forces," and the Soviet Union supplied weapons. In the 1960s and 70s, Cuba sent tens of thousands of soldiers to various parts of Africa and received economic and military aid from the Soviet Union. The pattern of a smaller nation providing military forces for a major power's war and receiving economic and military compensation in return is a classic model in international relations.
However, what fundamentally distinguishes the modern North Korea-Russia relationship from the past is that it involves military cooperation between two nuclear-weapon states. Potential technology transfers that North Korea could receive from Russia—ICBM re-entry vehicle technology, nuclear submarine technology, reconnaissance satellite technology—could qualitatively leapfrog North Korea's strategic nuclear capabilities and fundamentally alter the strategic balance in East Asia. While the ¥2 trillion figure is shocking, the true threat lies in the invisible technology transfers.
The delta: The estimate that North Korea's income from military cooperation with Russia exceeds ¥2 trillion is the first numerical indication that the UN sanctions regime has been "quantitatively" nullified. The premise that sanctions would delay North Korea's nuclear development has collapsed; instead, the war in Ukraine has become the largest source of funding and technology for nuclear and missile development. The security order in East Asia is transitioning from a sanctions-based non-proliferation regime to a new phase centered on deterrence and alliance realignment.
🔍 Between the Lines — What the Reports Aren't Saying
The background to the South Korean government-affiliated think tank's announcement of the large figure of "over ¥2 trillion" reveals a clear political intention: to shape domestic public opinion for a new South Korean administration, following a potential Yoon Suk Yeol impeachment, to proceed with providing lethal weapons to Ukraine. The goal is to impress upon the public the "scale" of North Korea-Russia military cooperation, rather than the precise accuracy of the figure itself. Furthermore, the timing of this estimate coincides with a period when the United States is considering a review of its Ukraine aid, and it also serves as a declaration of South Korea's willingness to assume a new role as a pillar of Ukraine support, replacing the US. What truly warrants attention is not the monetary amount, but the "value of military technology transfer" included in the estimate, which implies an implicit acknowledgment that North Korea's nuclear and missile capabilities are irreversibly improving.
NOW PATTERN
Failure of Coordination × Crisis Exploitation × Spiral of Conflict
North Korea's "war economy," capitalizing on the crisis of the war in Ukraine, is internally collapsing the cooperative mechanism of the international sanctions regime and accelerating the spiral of conflict in East Asia.
Intersection of Dynamics
The three dynamics of "Failure of Coordination," "Crisis Exploitation," and "Spiral of Conflict" form a complex structure that mutually reinforces itself. This interaction is precisely why the current situation should be viewed not merely as a temporary deviation, but as a structural transformation of the international order.
First, the "Failure of Coordination" is creating the preconditions for "Crisis Exploitation." The dysfunction of the UN Security Council has rendered sanctions against North Korea ineffective, creating an environment where North Korea can openly conduct military transactions with Russia. If the sanctions regime had been functioning soundly, North Korea's ammunition exports and troop deployments would have immediately led to strengthened international sanctions, but Russia's veto power has neutralized the Security Council, giving North Korea a de facto "carte blanche."
Second, the outcomes of "Crisis Exploitation" are fueling the "Spiral of Conflict." North Korea's acquisition of over ¥2 trillion in income and military technology from Russia enhances its nuclear and missile capabilities, fundamentally altering the security perceptions of neighboring countries. South Korea, Japan, and the United States are compelled to strengthen countermeasures, which in turn leads to an arms race and intensified conflict across the region.
Third, the "Spiral of Conflict" further deepens the "Failure of Coordination." The more intense the conflict in East Asia becomes, the more reluctant China will be to strictly enforce sanctions against North Korea (as North Korea's collapse is the worst-case scenario for China), and Russia will increasingly deepen its military cooperation with North Korea. The scope for international cooperation narrows further, making the reconstruction of the sanctions regime even more difficult.
At the intersection of these three dynamics lies the symbolic meaning of the "¥2 trillion" figure. It is not merely a monetary amount, but an indicator that simultaneously visualizes the degree of sanctions regime collapse, the profitability of crisis exploitation, and the energy source of the spiral of conflict. Once this complex structure is established, it becomes extremely difficult to resolve individual dynamics in isolation, and improvement in the situation cannot be expected without a comprehensive approach—the end of the war in Ukraine, the establishment of a new security framework, and the design of alternative non-proliferation mechanisms.
📚 History of Patterns
1960s-1970s: Cuba's Troop Deployments in Africa and Soviet Compensation
A model of "proxy war economy" where a smaller nation provides military forces for a major power's proxy war and receives economic and military aid as compensation.
Structural similarities with the current situation: Cuba dispatched a cumulative total of 380,000 personnel to Angola, Ethiopia, and other countries, receiving billions of dollars in aid annually from the Soviet Union. This economic model disappeared after the collapse of the Soviet Union, leading Cuba into a severe economic crisis. This demonstrates the fragility of an economic structure dependent on the survival of a patron state.
1980s: North Korea's Weapon Exports to Iran during the Iran-Iraq War
Expansion of weapon export business by a sanctioned state, capitalizing on surging demand from warring parties.
Structural similarities with the current situation: North Korea exported large quantities of Scud missiles and artillery shells to Iran, earning foreign currency. This success established North Korea's business model as a "weapon exporting state" and became the prototype for its current dealings with Russia.
1990s-2000s: Pakistan's A.Q. Khan Nuclear Proliferation Network
A state-sponsored nuclear technology proliferation business that exploited loopholes in the monitoring of sanctions and non-proliferation regimes.
Structural similarities with the current situation: A.Q. Khan, the father of Pakistan's nuclear program, illicitly sold centrifuge technology to Iran, Libya, and North Korea. This is an example of an allied nation (Pakistan was an ally of the US in the War on Terror) internally undermining the non-proliferation regime, structurally similar to Russia's current destruction of the sanctions regime.
2014: Western Sanctions Against Russia After Crimea Annexation and China's Economic Support
A pattern where a sanctioned country nullifies the effect of sanctions by finding alternative economic partners.
Structural similarities with the current situation: After the 2014 sanctions, Russia rapidly deepened economic ties with China and mitigated the impact of sanctions by diversifying energy exports. This demonstrated the lesson that sanctions have limited effectiveness as long as alternative partners exist. North Korea is similarly circumventing sanctions through Russia as an alternative partner.
2023-2024: North Korea's Mass Acquisition of Cryptocurrency Through Cyber Theft
"Digital sanctions evasion" where a sanctioned country acquires foreign currency in cyberspace, an unregulated domain.
Structural similarities with the current situation: North Korea is reported to have stolen approximately $1.6 billion in cryptocurrency through hacking in 2023. While traditional sanctions target physical trade and financial transactions, cyberspace has become a "blind spot" for sanctions. In conjunction with military dealings with Russia, North Korea has established multiple channels for sanctions evasion.
Patterns Revealed by History
The common patterns revealed by historical precedents are clear. Sanctions regimes are consistently weakened by the existence of "alternative partners," and extraordinary circumstances like war serve as the greatest catalyst for sanctions evasion. Cuba's troop deployments in Africa, North Korea's weapon exports to Iran, Pakistan's nuclear proliferation network, Russia's pivot to China after Crimea—all are instances where sanctioned states (or destroyers of non-proliferation regimes) exploited the demands or geopolitical interests of major powers to circumvent or nullify sanctions.
The current North Korea-Russia relationship is more serious than any past case in that it is a "composite type" combining elements from all these precedents. Troop provision (Cuba model), weapon exports (Iran-Iraq War model), technology transactions (Khan network model), alternative partners (post-Crimea model), and cyber theft (digital model) are all proceeding simultaneously, and the challenge to the sanctions regime has reached a multidimensional and unprecedented scale. History suggests that once such complex sanctions evasion is established, it cannot be resolved by external pressure alone, but requires waiting for changes in the geopolitical environment itself (such as the end of the Cold War or the collapse of a patron state).
🔮 Next Scenarios
If the war in Ukraine does not lead to a ceasefire or frozen conflict by 2026 and continues at a low intensity, North Korea's weapon exports and troop deployments to Russia will also persist at the current pace. In this case, North Korea will continue to stably earn hundreds of billions of yen annually, with cumulative income significantly exceeding the estimated ¥2 trillion by 2027. New sanctions resolutions in the UN Security Council will be impossible due to Russia's veto, and the existing sanctions regime will continue to be hollowed out. South Korea will gradually expand indirect military aid to Ukraine (such as providing artillery shells via third countries) but will maintain a cautious stance on directly supplying lethal weapons. The United States will condemn North Korea-Russia military cooperation but will limit its actions to adding unilateral sanctions, without implementing fundamental countermeasures. North Korea will use technology acquired from Russia to conduct satellite launches and ICBM test fires, gradually increasing tensions in East Asia. Japan will seek to accelerate the achievement of its defense spending target of 2% of GDP and expedite the development of counterstrike capabilities. In this base case scenario, the situation will unfold as an extension of the status quo, with no dramatic improvement or rapid deterioration, and a state of "managed crisis" will become normalized.
Implications for Investment/Action: Continued stalemate on the Ukrainian front, stalled US-Russia ceasefire negotiations, reports of additional North Korean troop deployments, sustained pace of Russian ammunition consumption.
If the war in Ukraine reaches some form of ceasefire agreement by 2026, North Korea's "war boom" for Russia will rapidly shrink. Should a ceasefire materialize, Russia's ammunition demand would drastically decrease, rendering large-scale imports of artillery shells and ammunition from North Korea unnecessary. Dispatched soldiers would also be gradually withdrawn, significantly reducing North Korea's sources of income. Furthermore, if Russia seeks to re-enter the international community after a ceasefire, a reduction in military cooperation with North Korea could be presented as a condition for normalizing relations with the West. In this scenario, North Korea would again face economic isolation, and the pressure from sanctions would relatively recover. However, even in an optimistic scenario, military technologies already transferred cannot be "rolled back," and the qualitative improvement of North Korea's nuclear and missile capabilities is irreversible. Moreover, the possibility that Russia might secretly continue technological cooperation with North Korea even after a ceasefire cannot be ruled out. The realization of an optimistic scenario hinges on the conclusion of comprehensive ceasefire negotiations between the US and Russia, and as of March 2026, the outlook for this is extremely uncertain.
Implications for Investment/Action: Concrete progress in US-Russia ceasefire negotiations, decrease in combat intensity on the Ukrainian front, signs of reduced Russian ammunition imports, Putin's diplomatic softening.
A scenario where North Korea-Russia military cooperation further escalates and enters a qualitatively new phase. Specifically, Russia would seriously transfer ICBM re-entry vehicle technology and nuclear submarine-related technology to North Korea, leading to a qualitative leap in North Korea's strategic nuclear capabilities. North Korea would conduct test launches of new ICBMs or a seventh nuclear test, rapidly deteriorating the security environment in East Asia. South Korea would proceed with direct provision of lethal weapons to Ukraine, and Russia would take retaliatory measures against South Korea (cyberattacks, sanctions on South Korean companies, additional technology transfer to North Korea), causing the spiral of conflict to become uncontrollable. In an even more pessimistic scenario, North Korea would intensify military provocations on the Korean Peninsula based on its combat experience in Russia, increasing the risk of accidental clashes. The rise of nuclear armament arguments in Japan and South Korea, declining trust in US extended nuclear deterrence, and shifts in China's strategic calculations could destabilize the entire security order in East Asia. This scenario could materialize if the war in Ukraine prolongs and intensifies, and North Korea's strategic ambitions expand simultaneously.
Implications for Investment/Action: Evidence of advanced military technology transfer from Russia to North Korea, North Korea's test launch of a new ICBM or nuclear test, South Korea's decision to provide lethal weapons to Ukraine, rapid escalation of military tensions on the Korean Peninsula.
Key Triggers to Watch
- South Korea's decision to provide lethal weapons to Ukraine: April-September 2026
- North Korea's test launch of a new ICBM or seventh nuclear test: Within 2026
- Start or collapse of US-Russia ceasefire negotiations on Ukraine: March-December 2026
- Confirmation of additional large-scale troop deployment from North Korea to Russia (second wave): April-June 2026
- Confirmation of advanced military technology transfer from Russia to North Korea via satellite imagery or intelligence: Within 2026
🔄 Tracking Loop
Next Trigger: Announcement of the new South Korean administration's Ukraine policy (scheduled for April-May 2026) — The decision on whether to provide lethal weapons will be a turning point determining the next stage of the spiral of conflict.
Continuation of this Pattern: Tracking Theme: Deepening North Korea-Russia Military Cooperation and Collapse of Sanctions Regime — Next milestones are the new South Korean administration's decision on weapon provision to Ukraine (first half of 2026) and North Korea's next ballistic missile launch.
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