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Russell: China and India's reaction to Trump's Russia oil-tariff threat is crucial.

The threat by U.S. president Donald Trump to impose secondary duties of 25 to 50 percent on buyers of Russian crude is so outrageous and bold that it may achieve his stated goal of a ceasefire between Ukraine and Russia.

What is important now is how the other key players react to the latest move of this mercurial, inconsistent U.S. president.

Do Russian President Vladimir Putin and Indian Prime Minister NarendraModi, as well as Chinese President Xi Jinping, believe that Trump is going to follow through on his promises? If so, what will this mean for the energy situation of these countries?

India and China are the two largest buyers of Russian crude oil. Their reaction is as important as Putin’s response to Trump’s latest shift.

Trump told NBC News he was "frustrated" with Putin and would impose tariffs up to 50% for buyers of Russian crude if he felt that Moscow was blocking efforts to bring peace to Ukraine.

If Russia and I cannot reach an agreement to stop the bloodshed in Ukraine and if I believe it is Russia's responsibility, then I will impose secondary tariffs on all oil coming out of Russia. Trump said that he would impose secondary tariffs on all Russian oil.

It is a reversal from his previous friendly attitude toward Putin. This had attracted widespread criticism because it was seen as a surrender to Russia and a tacit acceptance of its aggression.

Russia, China, and India have to assess whether Trump's threats are credible and likely.

Putin may back down a little if he believes Trump is going to increase sanctions against Russia's major export.

India is in a difficult position, as Modi's stance has been to try to appease Trump. A proposal to abolish the import duty for U.S. Liquefied Natural Gas in order to increase purchases was an example.

India is also a major beneficiary from the fact that the rest of world has shunned Russian crude. This has allowed the South Asian nation the opportunity to purchase discounted cargoes, so much so that Russia now ranks as its biggest supplier.

According to LSEG Oil Research, India will import 1.52 million barrels of Russian oil per day in March. This represents just over 30% of the total number of arrivals.

India is already forced to buy less oil from Iran due to U.S. sanctions. Replacing Russian barrels would increase the price of Indian oil and force India to look for alternative suppliers.

CHINA RISK

China is less likely than the U.S. to give in to pressure, since it is the sole major buyer of Iranian oil. It is also the top importer for Russian oil.

Beijing faces the risk that a tariff increase of up to 50 percent on U.S. imported goods from China on top of Trump's 20% tariff would cause real pain to its economy. It is already struggling for momentum.

If Trump's threat of secondary duties on buyers of Russian oil is credible, this will also change the dynamics of the OPEC+ exporters group, which includes the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia.

OPEC+ Members other than Russia will benefit from any price increase resulting from a reduction of Russian barrels. This will enable them to increase production and exports.

It's a fight between self-interest and group solidarity. With the fiscal position of many OPEC+ countries deteriorating, it may be difficult to resist the temptation of earning more money through higher exports.

For the moment, players will likely respond cautiously - at least publicly - as they attempt to determine whether Trump's new tariff threat was a thought balloon easily discarded by the next change in sentiment.

Initial market reactions were subdued. Brent futures, the global benchmark, rose a modest 0.3% in early Asian trading on Monday to $73.84 per barrel.

These are the views of a columnist, who is also an author. (Editing by SonaliPaul)

(source: Reuters)