Will Trump Follow Up on Threats to Stifle Russia's Oil Exports
While watching summer demand and OPEC+ production policy, the oil market has started to pay attention to President Trump’s threats to hit Russian oil buyers with secondary tariffs.
Earlier this week, President Trump threatened “tariffs and stuff” if Russia doesn’t agree to a ceasefire in 10 days, shortening the 50-day deadline he had given Putin on July 14 to discuss peace or face sanctions.
Oil markets reacted on Tuesday to the much shorter deadline, with prices rallying to close 3% higher amid increased concerns that there could be some disruption to Russian oil supply.
After weeks of ignoring President Trump’s threats to slap Russia with more sanctions and its customers with “tariffs and stuff”, the market now isn’t fully discarding the idea that the U.S. President could make good on his threats this time.
“Tariffs and Stuff”
President Trump has previously backed off from the “retaliatory” tariffs on the world, pausing these to seek trade deals with individual countries.
But trade talks with China and India, Russia’s main oil customers, are dragging on amid many sticking points.
President Trump announced on Wednesday that Indian goods in the U.S. would be taxed with a 25% tariff, and India will also pay a “penalty” for buying the vast majority of its military equipment and a lot of Russian energy.
“They have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE — ALL THINGS NOT GOOD! INDIA WILL THEREFORE BE PAYING A TARIFF OF 25%, PLUS A PENALTY FOR THE ABOVE, STARTING ON AUGUST FIRST,” President Trump wrote on Truth Social.
In another post later on Wednesday, the President wrote, “I don’t care what India does with Russia. They can take their dead economies down together, for all I care. We have done very little business with India, their Tariffs are too high, among the highest in the World.”
Related: U.S. Crude Oil Output Set New Record in May: EIA
President Trump’s latest posts have sparked concern among Indian refiners. These have reportedly asked the Indian oil ministry for urgent guidance how to proceed with crude oil flows from Russia arriving after August 1, sources with knowledge of the refiners’ procurement practices told Bloomberg on Wednesday.
Since the Russian invasion of Ukraine and the bans on Russian oil in the West, India has become a key buyer of Russian crude, alongside China. Russia, for its part, became the single biggest oil supplier to India.
OPEC’s market share in India slumped to an all-time low of below 50% of India’s crude oil imports in the 2024-2025 fiscal year, as Russian oil flows continued to rise and dent the share of the Middle Eastern producers.
Even if President Trump doesn’t follow up on the threats of “penalty” for India, procurement would be disrupted in early August as Indian buyers will likely seek alternative sources of crude until the situation becomes clearer.
Separately, U.S. Treasury Secretary Scott Bessent warned China that buying Russian and Iranian oil could lead to secondary tariffs due to legislation being considered in Congress.
“I think anyone who buys sanctioned Russian oil should be ready for this,” Bessent said on Tuesday, referring to President Trump’s shortened 10-day deadline to Putin to make progress on a peace agreement in Ukraine.
If President Trump introduces penalties or secondary tariffs or whatever the word for additional sanctions, the oil market will suffer severe disruptions, and prices will spike.
Impact on the Oil Market
For now, the market appears to be calling President Trump’s bluff and isn’t pricing in too much disruption to Russian oil exports.
But should these exports be choked off due to penalties on buyers, the deficit on the market would surge so high that not even OPEC’s spare capacity could fill the void left by Russia, analysts say.
“The US and India have struggled to come to a trade deal before Friday’s deadline. It’s still unclear how big a penalty India faces (the original threat was for a secondary tariff of 100%),” ING commodities strategists Warren Patterson and Ewa Manthey wrote in a Thursday note.
“This is causing plenty of uncertainty for Indian refiners, as well as the broader market, as to whether they can continue to import Russian oil,” the analysts added.
However, given President Trump’s on-and-off threats, inconsistent tariff policies, and his explicitly stated desire for low oil and energy prices, U.S. penalties on buyers of Russia’s oil are not the base-case scenario of analysts.
“We would caution against assigning too high of a probability to a sustained material disruption in Russian supplies at this time, given several considerations that could blunt the effect,” Barclays said earlier this week.
These considerations are the Trump Administration’s priority to keep energy prices low, Russia’s ability to skirt sanctions since 2022, and potentially more difficult U.S. trade talks with China and India if Trump moves to impose secondary tariffs on buyers of Russian oil, Barclays notes.
Many market watchers and banks believe that the upside to prices from secondary tariffs is limited, mostly because the Trump Administration wouldn’t want to inflate global oil prices, domestic gasoline prices, and energy costs for American consumers.
By Tsvetana Paraskova for Oilprice.com
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