By Michelle Nichols and Jack Kim

UNITED NATIONS/SEOUL (Reuters) – The U.N. Security Council is set to vote on Monday on a watered-down U.S.-drafted resolution to impose new sanctions on North Korea over its latest nuclear test, diplomats said, but it was unclear whether China and Russia would support it.

North Korea warned the United States that it would pay a “due price” for spearheading efforts for fresh sanctions for this month’s nuclear test, which followed a series of test missile launches, all in defiance of U.N. sanctions.

A U.S.-drafted resolution originally calling for an oil embargo on the North, a halt to its key exports of textiles and subjecting leader Kim Jong Un to a financial and travel ban have been weakened, apparently to placate Russia and China which both have veto powers, diplomats said.

It no longer proposes blacklisting Kim and relaxes sanctions earlier proposed on oil and gas, a draft reviewed by Reuters shows. It still proposes a ban on textile exports.

North Korea was condemned globally for conducting its sixth nuclear test on Sept 3, which it said was of an advanced hydrogen bomb. NATO head Jens Stoltenberg said at the weekend that North Korea’s “reckless behavior”, pursuing nuclear and missile programs, was a global threat and required a global response.

The tensions have weighed on global markets, but on Monday there was some relief among investors that North Korea did not conduct a further missile test this weekend when it celebrated its founding anniversary.

Still, North Korea denounced efforts by Washington to impose new U.N.-backed sanctions against the country. The North’s Foreign Ministry spokesman said the United States was “going frantic” to manipulate the Security Council over Pyongyang’s nuclear test, which it said was part of “legitimate self-defensive measures.”

“In case the U.S. eventually does rig up the illegal and unlawful ‘resolution’ on harsher sanctions, the DPRK shall make absolutely sure that the U.S. pays due price,” the spokesman said in a statement carried by the official KCNA news agency.

DPRK stands for the North’s formal name, the Democratic People’s Republic of Korea.

“The world will witness how the DPRK tames the U.S. gangsters by taking a series of actions tougher than they have ever envisaged,” the unnamed spokesman said.

“The DPRK has developed and perfected the super-powerful thermo-nuclear weapon as a means to deter the ever-increasing hostile moves and nuclear threat of the U.S. and defuse the danger of nuclear war looming over the Korean peninsula and the region.”

South Korean President Moon Jae-in said last week during a visit to Russia that shutting off North Korea’s supply of oil was inevitable this time to bring Pyongyang to talks and he called for Russian President Vladimir Putin’s support.

Putin has remained firm however that such sanctions on oil would have negative humanitarian effects on North Koreans.

China, the North’s lone major ally, may be most critical though in deciding if oil sanctions go ahead because it controls an oil pipeline that industry sources say provides about 520,000 tonnes of crude a year to the North.

A Security Council resolution needs nine votes in favor and no vetoes by permanent members the United States, Britain, France, Russia or China to pass.

Chinese Foreign Ministry spokesman Geng Shuang stressed the need for consensus and maintaining peace.

“I have said before that China agrees that the U.N. Security Council should make a further response and necessary actions with respect to North Korea’s sixth nuclear test,” he told reporters.

“We hope Security Council members on the basis of sufficient consultations reach consensus and project a united voice. The response and actions the Security Council makes should be conducive to the denuclearization of the peninsula, conducive to safeguarding the peace and stability of the peninsula, and conducive to push forward the use of peaceful and political means to resolve the peninsula nuclear issue.”

FALLOUT

The latest draft of the resolution reflects the challenge in imposing tough sanctions on the North by curbing its energy supply and singling out its leader for a financial and travel ban, a symbolic measure at best but one that is certain to rile Pyongyang.

It will also be a disappointment to South Korea, which has sought tough new sanctions that would be harder for Pyongyang to ignore, as it said dialogue remained on the table.

“We have been in consultations that oil has to be part of the final sanctions,” South Korean Foreign Minister Kang Kyung-wha told a news conference, saying Pyongyang was on a “reckless path”.

“I do believe that whatever makes it into the final text and is adopted by consensus hopefully will have significant consequences on the economic pressure against North Korea.”

There was no independent verification of the North’s claim to have conducted a hydrogen bomb test, but some experts said there was enough strong evidence to suggest Pyongyang had either developed a hydrogen bomb or was getting close.

KCNA said on Sunday that Kim threw a banquet to celebrate the scientists and top military and party officials who contributed to the nuclear bomb test, topped with an art performance and a photo session with the leader himself.

The standoff is also spilling over into the business relationship between South Korea and China.

South Korea’s Lotte Shopping  is considering selling its supermarkets in China and other options should political tensions between Seoul and Beijing continue next year, an official at the retailer told Reuters.

China has pressured South Korean businesses via boycotts and bans since Seoul decided last year to deploy a U.S.-made missile defense system as a deterrent to North Korea. Beijing says the system’s radar can penetrate far into its territory.

South Korea deployed four additional units of the Terminal High Altitude Area Defense (THAAD) system on Thursday after the North’s latest nuclear test.

The heightened tension could have a substantial impact on South Korea’s economy and could also disrupt trade between the United States and China, ratings agency Fitch said on Monday.

Outright military conflict on the Korean peninsula is unlikely but prolonged tension could undermine business and consumer sentiment, Fitch said.

(Additional reporting by Christine Kim and Hyunjoo Jin in SEOUL and Philip Wen in BEIJING; Editing by Neil Fullick and Nick Macfie)