Political Risk Analysis - Military Tensions To Persist In Q2 2017 - JUNE 2017

BMI View: Although North Korea refrained from carrying out a new nuclear test around key national anniversaries in April, we believe that the risk of a further missile or atomic weapons test will persist over the coming months. Regional powers will remain vigilant for unexpected developments, with the greatest danger stemming from miscalculation by Pyongyang or the Trump administration.

The situation around the Korean Peninsula will remain tense over the coming months, as the US Trump administration steps up its pressure on the North to halt its ballistic missile and nuclear weapons development, and Pyongyang refuses to do so. In our view, Korea represents the most dangerous flashpoint in the world at present, because a major conflict there could devastate South Korea, harm Japan, and drag in the US and China on opposing sides.

Although North Korea refrained from a new nuclear test to mark the 105th anniversary of the birth of its founder Kim Il Sung on April 15 and the 85th anniversary of the establishment of its armed forces on April 25, this restraint may only be temporary. Indeed, despite President Donald Trump announcing in early April that a powerful US armada was sailing towards Korea, Pyongyang still attempted to carry out a missile test on April 15. The significance of the missile test was only overshadowed by the fact that it exploded shortly after take-off. This failure, and other technical glitches with previous missile tests, has raised speculation that the US has successfully used cyber warfare to delay advances in the North's missile programme and even fatally sabotage missiles after launch. This is impossible to verify, but regardless of the truth, Pyongyang will press ahead with developing nuclear-tipped missiles capable of striking the US, as it sees this as a vital deterrent against a hypothetical US attack.

A Key Bellwether Of Tensions
South Korea - Victek Share Price (KRW)

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