(Reuters) – US President Donald Trump is unlikely to follow the threat of placing 100% tariffs on countries that buy Russian oil to exacerbate politically damaged inflationary pressures. Similar threats to Venezuelan oil buyers have limited success, especially in China.
Trump said this month that he would put 100% secondary tariffs on countries that buy Russia’s exports unless Moscow agrees to a massive peace deal with Ukraine in 50 days.
The threat reflects the announcement in March that the US would slap tariffs to licensed Venezuelan oil buyers. Despite the rise in Venezuela’s oil exports, no such tariffs have been imposed.
In Russia, “we found that secondary tariffs may be too dull for the regime to use,” says Fernando Ferreira, director of geopolitical risk services at the Consultant Rapian Energy Group.
“If you are willing to remove 4.5 million barrels per day from the market and use nuclear options, you are willing to cut off commercial ties with other countries as you import Russian oil, you will risk a massive oil price surge and a global economy meltdown.”
Clay Seigl, senior fellow in Energy and Geopolitics at the Center for Strategic and International Studies and chairman of James Schlesinger, said that if 100% tariffs are fully enforced in countries that receive Russian barrels, it could cut global supplies and raise prices.
Analysts and traders are deeply skeptical of Trump allowing it to happen for two reasons, Seigle said. “First of all, he is very sensitive to high oil prices and would like to avoid the consequences.”
Second, Trump prefers full bilateral dealings rather than adhere to strict formulas that tie his hands in negotiations.
“Some US trading partner countries, like oil traders, dismiss this as grand,” Seigle said.
On July 16, two days after issuing the tariff threat, Trump said the oil price at $64 a barrel is at a big level, and his administration is trying to lower it a little more, with the low level being “one of the reasons why inflation is being curtailed.”
Since then, oil prices have remained in the mid-$60 range, avoiding the threat of impending supply disruption.
Seigle said Trump’s existing trade war, particularly his tariffs on steel, could boost commodity prices for US oil drillers, the world’s top crude oil producer. This could raise oil prices just as central US Congressional elections begin next year.
Trump’s Republicans hold a thin razor majority in both the U.S. House and Senate, and the president will avoid action to spike oil prices during the campaign, analysts said.
White House spokesman Anna Kelly said Trump has proven he is following his promises.
“He was very strict with (Russian President Vladimir) Putin, leaving all his options wisely on the table, leaving all his options wisely on the table. Recently, if he doesn’t agree to a ceasefire, Putin has threatened to bite tariffs and sanctions.”
The Treasury, which manages sanctions, said it was ready to act.
“As President Trump announced, Russia is ready to agree to a contract to end the war for 50 days, or the US is ready to implement a bite-based second sanction,” the spokesman said.
Hesitant to target Russia
The Trump administration’s loose enforcement of a 25% tariff threat in March against Venezuelan oil buyers and the failure to impose effective energy sanctions on Russia so far are two other reasons market participants are skeptical.
China, a Venezuela top oil customer, has adapted to US sanctions over oil exports since it was imposed in 2019. Last year, China rebranded more than $1 billion in Venezuelan oil as a Brazilian. Venezuela’s exports surged in June as losses for US and European buyers were offset by freight sent to China.
Indian oil refiners, the leading buyer of Russian crude oil, do not believe Trump is not thinking of following the threat and there are no plans to halt Russian oil purchases, three sources from the Indian refiners said.
According to data provided by sources, India’s Russian oil imports rose by about 1% in the first half of this year, with refiners Reliance Industry and Nayara’s energy increasing almost half of the overall purchases from Moscow.
However, Oil Minister Hardeep Singh Puri said that the world’s third largest oil importers and consumers are confident that they will use alternative sources to meet their needs if Russian supplies hit.
Trump’s Treasury Department has designated around 19 Russian citizens since January 20 under actions that have little to do with the counter-terrorism, cyber and North Korea’s sanctions programme, Ukraine, a law firm Hughes Hubbard & Reed and Jeremy Panner, an investigator at the former Treasury Department’s Sanicationing Bureau.
In comparison, the US has designated around 75 Iranian citizens and groups, and has imposed such measures on 109 since Trump began his second term, he said.
“Based on the regime’s apparent hesitance towards targeting Russia through trade sanctions, I don’t think the threat of Russian oil tariffs is particularly effective,” Panner said.
And despite the US Senate’s strong bipartisan support for a bill that imposes 500% tariffs on Russian oil buyers, action is unlikely to come from Congress. Senate Republican leaders are waiting for Trump’s teacher and have given no indication that they intend to take up the bill before leaving Washington for an August break.
Even if the bill passes, it allows the president to abandon tariffs and claims lawmakers that they are strict against Russia, but makes the law almost symbolic.
“It all makes sense from a political messaging perspective, but from the perspective of what is needed for legal authority on sanctions, it’s a bit of a head scratch,” Panner said.
Reported by Timothy Gardner. Additional reporting by Patricia Zengal of Washington, Nidhi Verma of New Delhi, siyi li of Singapore
Share this:
