Trump unlikely to enforce tariff threat on Russian oil

Zawya

2 days ago

U.S. President Donald Trump is unlikely to follow through on his threat to place 100% tariffs on countries that buy Russian oil because it would worsen politically-damaging inflation pressures and his similar threat against buyers of Venezuelan oil has had limited success, especially in China.
Trump said this month he would put 100% secondary tariffs on countries that buy Russian exports unless Moscow agrees to a major peace deal with Ukraine in 50 days, a deadline that would expire in early September.
The threat mirrored an announcement in March that the U.S. would slap tariffs on buyers of sanctioned Venezuelan oil. No such tariffs have been imposed since, even though Venezuela's exports of oil have jumped.
"We find that secondary tariffs may be too blunt of an instrument for the administration to use," on Russia, said Fernando Ferreira, the director of geopolitical risk service at consultancy Rapidan Energy Group.
"If you're willing to go with the nuclear option by removing 4.5 plus million barrels a day from the market, and you're willing to cut off commercial ties with other countries because they're importing Russian oil, you're going to risk massive oil price spikes and a meltdown of the global economy."
Clay Seigle, senior fellow and James Schlesinger chair in energy and geopolitics at the Center for Strategic and International Studies, said that if the 100% tariff is fully enforced on countries that receive Russian barrels, it has the potential to cut global supplies and drive prices higher.
Analysts and traders are deeply skeptical that Trump will allow that to happen for two reasons, Seigle said. "First, he is very sensitive to high oil prices and will want to avoid that outcome."
Second, Trump prefers consummating bilateral deals more than adhering to any strict formulas that would tie his hands in negotiations.
"Some U.S. trade partner nations may, just like oil traders, dismiss this as grandstanding," Seigle said.
On July 16, two days after issuing the tariff threat, Trump said the oil price of $64 a barrel was a great level, that his administration was trying to get it down a little bit more, and the low level was "one of the reasons that inflation's in check."
Since then oil prices have stayed in the mid-$60s range, shrugging off the threat of imminent supply disruptions.
Seigle said Trump's existing trade war, particularly his tariffs on steel, could push commodity prices higher for oil drillers in the United States, the world's top crude producer. That could raise prices for oil just as the midterm U.S. Congress elections get underway next year.
Trump's Republicans hold razor-thin majorities in both the U.S. House and Senate and the president will likely avoid actions that spike oil prices during the campaigns, the analysts said.
White House spokesperson Anna Kelly said Trump has proven he follows through on his promises.
"He has been extremely tough on (Russian President Vladimir) Putin and smartly left all options on the table while leaving existing sanctions in place – and recently threatened Putin with biting tariffs and sanctions if he does not agree to a ceasefire."
The Treasury Department, which administers sanctions, said it was ready to act.
"As President Trump announced, Russia has 50 days to agree to a deal to end the war, or the U.S. is prepared to implement biting secondary sanctions," a spokesperson said.
HESITANCY TO TARGET RUSSIA
The Trump administration's lax enforcement of the 25% tariff threat in March on buyers of Venezuelan oil and the failure so far to impose effective energy sanctions on Russia are two other reasons why market participants are skeptical.
China, Venezuela's top oil customer, has been adapting to U.S. sanctions on the oil exports since they were imposed in 2019. Over the last year, China has been buying more than $1 billion of Venezuelan oil rebranded as Brazilian, according to tanker tracking companies. Venezuela's exports surged in June as the loss of U.S. and European buyers was offset by cargoes sent to China.
Indian oil refiners, major buyers of Russian crude, do not believe that Trump will follow through on the threat, and there are no plans to stop purchases of Russian oil, three sources at Indian refiners said.
India's imports of Russian oil rose about 1% in the first half of this year, with refiners Reliance Industries and Nayara Energy making almost half of the overall purchases from Moscow, according to data provided by sources.
Oil Minister Hardeep Singh Puri, however, said the world's third-largest oil importer and consumer was confident of meeting its needs using alternative sources if Russian supplies are hit.
Trump's Treasury Department has designated about 19 Russian nationals since January 20 under counter-terrorism, cyber, and North Korea sanctions programs, actions mostly not related to the war in Ukraine, said Jeremy Paner, a partner at law firm Hughes Hubbard & Reed and former Treasury Department sanctions investigator.
By comparison, the U.S. has designated about 75 Iranian nationals and entities and imposed 109 such measures on China since Trump began his second term, he said.
"Based on the administration's apparent hesitancy to target Russia through trade sanctions, I do not see the Russian oil tariff threat as particularly effective," Paner said.
Action is also not likely to come from Congress even though the U.S. Senate has strong bipartisan support for a bill that would impose 500% tariffs on buyers of Russian oil. The Senate's Republican leaders are waiting for Trump's go-ahead and have given no indication that they intend to take up the bill before they leave Washington for the August recess.
Even if the bill passes, it will likely allow the president to waive tariffs, letting lawmakers claim they are tough on Russia but rendering the legislation mostly symbolic.
"It all makes sense from a political messaging perspective, but from the perspective of what's needed for the legal authority on sanctions, it's a bit of a head scratcher," Paner said.
(Reporting by Timothy Gardner; additional reporting by Patricia Zengerle in Washington, Nidhi Verma in New Delhi and Siyi Liu in Singapore Editing by Marguerita Choy)