The Pariah State Playbook - Understanding Sanctions in North Korea and Myanmar

Damian Shahfazli | Indo Pacific Fellow

Image sourced from via Tommy Ian via Wikimedia Commons.

Sanctions imposed on the pariah states of North Korea and Myanmar are failing to deter behaviours considered aversive to US-aligned nations, such as nuclear armament or human rights abuses. To bypass international isolation imposed by sanctions, these pariah states rely on sanction loopholes and systems of transnational crime.

In 2006, the UN Security Council Resolution 1718 imposed sanctions on North Korea’s heavy weaponry, missile technologies and luxury goods in response to their first nuclear test. Nine major additional sanctions resolutions have been applied by EU and US allied nations, including Australia, Japan and South Korea. While not imposed by the UN, Myanmar currently faces 70 international sanctions from similar US-allied nations targeting state-owned oil and gas enterprises and financial assets, reinstated after the 2021 military coup.

Desperation has pushed North Korea and Myanmar to adopt creative but illicit measures to keep their regimes’ economies afloat. With a limited pool of trading partners, nations willing to engage with pariah states have capitalised on their opportunity for cash. Antipathy toward a US-led international order has further driven the militaristic, economic and political exchanges between pariah states.  The persistence of pariah state economies has undermined the efficacy of current Western-led sanction regimes which fail to account for alternative alliances, illicit networks, and shifting regional blocs. 

Alternative Economies

Decades of sanctions have driven North Korea to double down on illicit domestic industries to replace imports and deepen economic ties with sympathetic neighbours. North Korea today is home to a lucrative false eyelash, beard and wig industry, valued at $167 million and responsible for 60 per cent of declared exports to China, much of which is re-exported as being “made in China”. China has acted pragmatically, profiting off a willingness to trade with sanctioned regimes that have limited alternative partners. North Korea also generates revenue through cybercrime, notably via the state-sponsored unit Lazarus Group. Malware, phishing, and identity fraud to steal crypto currency have accrued over USD$6 billion in crypto assets, used to fund nuclear and ballistic missile programs.

In Myanmar, the departure of Western firms has created and concreted opportunistic ties with neighbouring states, with sanctions failing to undermine Myanmar’s financial gains. Resource extraction industries like logging and jade mining have continued as resource-rich alternatives, with concessions granted to the Burmese military elite. Companies extracting jade must agree on hefty mining concessions in addition to a 15 to 20 per cent tax on sales. Insufficient resource processing technologies have led to unprocessed jade sold below the market rate, most often to Chinese buyers. Similarly, Indian-based conglomerates have stepped in to establish petroleum refineries, gaining a foothold in Myanmar’s oil and gas sector. 

With little incentive to challenge the current sanctions regime, these states reap the economic benefits while Western states appear punitive and hypocritical, repeatedly calling for stricter measures despite their own nuclear history. Further, the effect of sanctions squeezing out other industries and strengthening economic relations with a select few nations can consolidate an isolated state’s power. In doing so, pariah states seek to blame their citizens’ living situations on external forces rather than their own economic mismanagement. This contradicts humanitarian rationales behind sanctions, where Myanmar continues to face supply shortages of medical goods, and humanitarian aid has been barred to North Korea.

The End of Enforcement 

Ultimately, international isolation has disincentivised North Korea and Myanmar to comply with a rules-based international order as they shift toward alternative economies. This was signalled through growing collaboration with Russia from North Korea’s deployment of troops in Ukraine to Myanmar General Min Aung Hlaing’s repeated visits to Moscow—built on mutual economic and geopolitical interests. An ‘Axis of Upheaval’ has been used by US-based policy institutes to describe this collaboration of isolated states bar China, strengthened following the Russian invasion of Ukraine in 2022.

As this coalition strengthens, the global sanctions regime itself appears to be unravelling. In early 2024, Russia vetoed the renewal of the UN Panel of Experts tasked with monitoring compliance with sanctions against North Korea. China too, has grown less tolerant of enforcement efforts, increasingly objecting to third countries’ unilateral sanction measures targeting North Korea. With the collapse of a unified sanctions regime, pariah states have grown bolder in their defiance — highlighting the limits of US-aligned sanctions as tools of coercive diplomacy.

North Korea and Myanmar will continue to pursue their strategic interests irrespective of sanction regimes, where China has assumed the primary benefactor and gatekeeper of their economies. Whilst sanctions may signal international condemnation, their use has proven ineffective in preventing alternative economic partnerships, illicit industries and non-compliance with international order. Just as sanctions operate on disincentives, inversely, positive incentives for compliance prove an alternative model. Evidenced by the initial success of the Iran nuclear deal (JCPOA), Iran agreed to limit uranium stockpile and enrichment capabilities prior to Trump’s withdrawal in 2018, where a similar plan could be fleshed out in the case of North Korea. 

States act out of rational self-interest; therefore, these deals focused on mutual diplomatic concessions pave a positive path forward rather than isolating entire states. Targeted sanctions against high-ranking officials have also yielded more favourable outcomes over blanket approaches to entire industries. But the language of sanctions must change first, so they are not exercised performatively as a first course of action. Ultimately, if regime change remains the implicit goal of US-aligned sanctions policy, this diplomacy will never gain traction.

Damian Shahfazli is the Indo Pacific Fellow for Young Australians in International Affairs. He recently completed a Bachelor of Arts and Bachelor of International Studies majoring in International Relations, Chinese Studies, and minoring in Politics at Macquarie University. Through his studies Damian had the opportunity to study abroad in Taiwan in 2023 for 6 months as a New Colombo Plan Mobility Grant recipient which drew his interest deeper into the Indo-Pacific.