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Since 1953 the two Korean nations have fought three skirmishes in the Yellow Sea waters. In 2002 the North Koreans sunk a 130-ton South Korean naval ship in a surprise attack, but no war came from the skirmish. In January 2010 North Korea fired approx. 30 artillery rounds across the DMZ; South Korea fired 100 warning shots in response.
Today the 1,200-ton "Cheonan" was on a routine patrolling mission near South Korea's Baeknyeong Island with 104 crew members on board when the ship began taking on water. 98 South Korean naval officers went down with the ship and so far only 58 of them have been rescued. Another 46 are still missing and are believed to be trapped inside the hull of the ship.
There is no evidence the ship was struck by an enemy torpedoe, but an investigation is still pending.
Yesterday North Korea threatened "unpredictable strikes" against the United States and South Korea, adding credence to the idea it may have been a North Korean submarine.
In an armed conflict the South Korean military is better equipped and has a sizable populace of former soldiers since military service for men is mandatory for a period of several years. However a nuclear first strike by North Korea could demolish Seoul and other key cities, forcing the USA and South Korea to respond with more nuclear weapons. North Korea also has a long time hatred of Japan and could likewise launch nuclear weapons at Tokyo and other major Japanese cities.
The North Korean leader Kim Jong Il's health isn't good and there is speculation in military circles that he is seeking to go out with a bang.
UPDATE (March 27th): No cause for the explosion at the rear of the ship has been determined yet. No additional officers have been rescued and are now presumed dead.
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