By Peter Apps, Political Risk Correspondent
LONDON (Reuters) - In the short term, international worries over North Korea following the death of Kim Jong-il center on a potential domestic leadership struggle that could heighten the risk of renewed conflict on the peninsula.
In the much longer run, however, the death could also usher in a quite different challenge: the hugely expensive task of reunifying Korea and reintegrating the world's most isolated state into the global economy.
The coming days could be full of distinctly mixed signals. On Monday morning, South Korean media reported the North had test-fired a short-range missile in what looked to be an early example of the sort of saber-rattling that many analysts fear.
All eyes will be on heir apparent Kim Jong-un, to try to gauge whether he can truly take his father's place as undisputed national leader and commander of a military with some 5 million men under arms and perhaps up to eight nuclear warheads.
Many doubt that he can.
"The main task, both internally and to the regime, would be to get clarity on leadership," said Michael Denison, research director at London-based risk consultancy Control Risks.
"There is a real risk of internal instability, particularly within the elite ... it's not clear at the moment that Kim Jong-un will be able to clearly entrench his control."
The young man, about 28 years old, was only presented as his father's successor last year, leaving him little time to build support, particularly given his lack of military experience. This will leave him dependent on others, at least for a while.
LASHING OUT AS DISTRACTION
"There are real concerns that heir-apparent Kim Jong-un has not had sufficient time to form the necessary alliances in the country to consolidate his future as leader," said Sarah McDowell, Asia analyst at IHS Global Insight.
"There is now a heightened risk of an upturn in factional tensions within the North Korean political elite as senior political figures, doubting the capabilities of Kim Jong-un, could initiate a power struggle."
Many expect his uncle, Jang Song-thaek, to remain a key force, perhaps ruling behind the scenes as the younger man builds experience - but perhaps also increasingly in confrontation with him. Other forces, too, may feel the need to assert themselves or risk being purged in what could swiftly become a bloody battle for power.
Analysts suspect such jostling started well before Kim Jong-il's death, perhaps explaining some aggressive and idiosyncratic actions by North Korea in recent years. These included the sinking of a South Korean corvette last year as well as a lethal artillery barrage 12 months ago against a South Korean island.
A worst-case scenario could see at least some elements in North Korea trying to pick a fight in the hope of using it to bolster their domestic position. Hardly a surprise, therefore, that South Korea's military and some 28,000 U.S. soldiers based on the peninsula have been placed on alert.
Many of their bases, like the South Korean capital itself, are believed to be within range of North Korea's artillery.
"There is the potential for tension between Kim Jong-un and Jang Song-thaek which could result in one or both precipitating a crisis to prove the new government's power to other senior leaders, although in the short term it is unlikely an internal struggle will be revealed publicly," said Brittany Damora, Asia analyst for the London-based risk consultancy AKE.
"I anticipate increased foreign policy tensions and, later down the line, with policy likely to remain highly erratic, there is the possibility of small-scale military attacks on South Korea."
That could also feed tensions between the United States and China, with which North Korea has long had a complex, dependent relationship.
The lack of a coherent regional security structure bringing together the United States, China, South Korea, Japan and other nearby powers could complicate attempts to manage the situation.
But there are some potentially stabilizing factors. Some argue the immediate future will be one of stasis, with little new trouble but also little diplomatic progress on key issues.
North Korea's sheer level of isolation, poverty and lack of connection to the Internet and outside world means few see any danger of the kind of popular, social-media-fed protest seen in North Africa or elsewhere this year.
"A crisis will probably not erupt immediately. North Korea will enter a period of mourning during which policies will remain fixed," says Mark Fitzpatrick, a non-proliferation expert at London's International Institute for Strategic Studies.
He said nuclear negotiations in particular would remain deadlocked.
And as yet, there are no signs of tension in the army.
"If the military remains committed to keeping the Kim family at the pinnacle of leadership, then things will likely hold, at least in the near term," the political risk consultancy Stratfor wrote in a note.
"There were no reports from South Korea that North Korea's military had entered a state of heightened alert following Kim Jong-il's death, suggesting that the military is on board with the transition for now. If that holds, the country likely will remain stable, if internally tense."
It suggested that could still leave the door ajar for talks with China and the United States on nuclear disarmament and, ultimately, closer relations with the South. There might be clear incentives for such an approach.
Should North Korea's government either collapse altogether or - more probably - decide to come in slowly from the cold, it could swiftly become one of the world's largest aid recipients.
After five decades largely cut off from the outside world, hunger is widespread and development needs are colossal. However, China may be reluctant to allow outright unification, and South Korea's electorate might welcome rapprochement, but be reluctant to pay the full bill themselves.
If it were ever politically achievable, reunification would prove a colossal task. The divide between the two Koreas dwarfs that between east and west Germany in 1989, requiring decades of wealth transfer as well as political and economic reform.
A million North Korean soldiers would require reintegration into society, to say nothing of the thorny issue of whether a united Korea might wish to remain a nuclear power.
If Kim Jong-il's death does spell the beginning of the end of North Korea's isolation, it will not be a quick process.
"The best-case scenario would be short-term stabilization, followed by a carefully planned shift to the market economy underpinned by responsible statecraft on nuclear and broader security issues," said Denison at Control Risks. "That would be a very long-term process and there is no sign yet that the North Koreans are prepared to move decisively in this direction ...
"We don't really know to what extent Kim Jong-il was himself the major roadblock to rapprochement with South Korea and the West, and to what extent he was constrained by other power centers."
(Reporting By Peter Apps; Editing by Kevin Liffey)