The potential incapacitation of KJU raises serious questions as to which elements of the political leadership control the DPRK’s strategic nuclear deterrent and other weapons of mass destruction. It will also have financial implications for the region.
This is a challenge as we have no information what the decision making process is behind their deployment, who would we talk to if negotiations were to take place or if there was an escalation in tension.
Assuming the DPRK would consolidate under one leader such as a general or KJU’s sister, Japan’s position vis-a-vis the DPRK’s military is based on its own domestic capabilities fortified by the US-Japan alliance. These will not change whether KJU is in power or not.
With no guarantee that a single leader would emerge, the challenge for markets is threefold. The advent of a civil war that would have spillover effects such as a disruption in supply chains on the peninsula, a physical conflict, and refugees.
This would destabilize the existing supply chains, redirect the movement of capital away from the peninsula, and disrupt the tech sector in particular with its reliance on South korea microchips.
It could also result in China quickly moving in to prop up a China freely regime. This would stabilize the region but would likely increase US-China friction if the new regime is too close to Beijing.
It could also result in the DPRKs collapse to result in some kind of confederation with South Korea. Like scenario one, this would affect the regional and global economy with South Korea being a major source of the world’s shipping, microchips, steel and electronics.
Any new leader would likely need to demonstrate their nationalist credentials and commitment to military action which could manifest as a nuclear test, missile testing or some other kind of provocation.
The most favourable outcome for markets would be a new leader that would denuclearize in exchange for economic aid from the US, Japan and others. While not out of the question, we don’t have enough information about the power dynamics within the elite to say whether this is possible.