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Trump's tariffs on Russia’s oil buyers brings economic and political risks

Donald Trump, the U.S. president, has used tariffs to achieve a variety of foreign policy goals.

Trump's favorite trade tool has been put to a new, if risky, use. He gave Russia a deadline of Friday to reach a peace agreement in Ukraine, or else its oil customers would face secondary tariffs.

Wednesday, the administration took an important step in punishing Moscow's clients by imposing a 25% additional tariff on goods imported from India due to its imports Russian oil. This is the first financial sanction aimed at Russia during Trump's second tenure.

A White House official confirmed on Wednesday that secondary measures Trump had threatened against countries purchasing petroleum would be expected on Friday.

The latest of Trump's threats to impose tariffs on non-trade matters include attempting to stop the fentanyl delivery from Mexico and Canada and penalizing Brazil for what he called a "witchhunt" against the former president Jair Bolsonaro.

Secondary tariffs may hurt the Russian economy by cutting off a major source of funding to President Vladimir Putin's war efforts, but they are also costly for Trump.

The oil price will rise and cause him political difficulties before the midterm elections in the U.S. next year. Tariffs could also hinder the administration's attempts to reach trade agreements with China and India.

Putin, for his part has indicated that Russia is ready to weather any economic hardships imposed by the U.S.

According to Eugene Rumer a former U.S. Intelligence Analyst for Russia, who is now the Director of Carnegie Endowment for International Peace’s Russia and Eurasia Program, there are "nearly zero chances" that Putin will agree to an agreement to ceasefire because Trump has threatened tariffs and sanctions against Russia.

Theoretically, if you stopped Indian and Chinese oil purchases that would be a heavy blow to Russian economy and war effort. "But that's not going to happen," said he, adding that China has signaled that they will continue buying Russia's crude oil.

The White House didn't immediately respond to an inquiry for comment.

The Russian Embassy in Washington has not responded immediately.

NEW COSTS FOR RUSSIA

Russia would be hurt by secondary tariffs, as it is the second largest oil exporter in the world. Since late 2022, the West has imposed a price limit on Russia's oil exports to reduce its ability to finance wars. This cap has increased costs for Russia, as it forced the country to redirect oil exports to India and China. These countries were able to buy huge quantities of oil at reduced prices. The cap kept oil flowing on global markets.

The White House has said that Putin and Trump may meet as early as next week. This follows a Wednesday meeting between U.S. ambassador Steve Witkoff with the Russian leader.

Some analysts doubt that Moscow will stop the war.

Brett Bruen is the former adviser on foreign policy for Barack Obama, now director of Global Situation Room. He warned that Putin had found ways to evade economic sanctions and sanctions. Even if sanctions and tariffs reduce Russia's revenue, Putin does not feel much pressure at home.

Bruen stated that secondary tariffs could cause economic pain. "But it is still unclear whether this will actually change Putin's behavior."

Tariffs could create problems for Trump's administration, as it seeks to pursue sweeping trade agreements with India and China.

Kimberly Donovan is a former U.S. Treasury Official who said that the tariffs may hamper U.S. trade and bilateral relations with India and China.

Donovan is now the director of the Economic Statecraft Initiative at the Atlantic Council’s GeoEconomics Center.

China has shown its leverage by cutting off the U.S.'s mineral exports. New tariffs could upset the delicate balance that was negotiated in May to restart these vital flows for a number of U.S. Industries. India has leverage on generic pharmaceuticals and precursor chemicals exported to the U.S.

Both countries claim that the purchase of oil is a matter for their sovereigns and that they adhere to the old rules. This includes the price cap placed on Russian crude.

RUSSIAN ROULETTE

Secondary tariffs will increase the price of imported products into the United States from Russia's clients, which could encourage them to purchase their oil somewhere else. By squeezing the shipments, Trump could face political problems due to a spike in fuel prices and inflation worldwide.

Fears of disruptions by Russia in the month following Moscow's invasion of February 2022 pushed crude oil prices near $130 per barrel. This was not far off their previous high of $147. Analysts said that if India stopped buying 1.7 millions barrels of Russian crude per day, which is about 2% global supply, the world price would rise from $66, as it currently does.

Analysts at JP Morgan said that it would be "impossible", this month, to sanction Russian crude oil without causing a price spike. Brent oil could reach $80 or more if there is a perceived disruption in Russian oil shipments. They said that despite Trump's claims that U.S. producers will step in, the country would not be able to ramp up quickly.

Russia could respond by closing the CPC Pipeline, which would create a global shortage.

Western oil companies Exxon, Chevron, Shell, ENI, and TotalEnergies can ship up to one million barrels a day through CPC. The CPC has a total capacity of approximately 1.7 million bpd.

Cullen Hendrix is a senior fellow at Peterson Institute for International Economics. He said that energy shocks were never welcomed, particularly in the context of a weakening job market and a softening house price. The key question is if Trump can make any economic pain seem necessary in order to get Russia to negotiate.

Hendrix said, "Of his tariff gambits this one could resonate the best with voters in principle, at least," It's also a move with massive downside risk." Timothy Gardner, Don Durfee, Diane Craft, Don Durfee, Matt Spetalnick and Patricia Zengerle reported from Washington, and Seher Dareen and Patricia Zengerle were in London.

(source: Reuters)