By Timothy Gardner, David Lawder and Seher Dareen
WASHINGTON/LONDON (Reuters) -From punishing Brazil to trying to curb imports of fentanyl, U.S. President Donald Trump has wielded the threat of tariffs as an all-purpose foreign policy weapon.
With a Friday deadline for Russia to agree to peace in Ukraine or have its oil customers face secondary tariffs, Trump has found a novel, but risky, use for his favorite trade tool.
The administration took a step toward punishing Moscow’s customers on Wednesday, imposing an additional 25% tariff on goods from India over its imports of Russian oil, marking the first financial penalty aimed at Russia in Trump’s second term.
No order has been signed for China, the top Russian oil importer, but a White House official said on Wednesday secondary measures that Trump has threatened against countries buying the petroleum were expected on Friday.
These are the latest in a string of Trump’s tariff threats on non-trade issues such as pressing Denmark to give the U.S. control of Greenland, attempting to stop fentanyl deliveries from Mexico and Canada, and penalizing Brazil over what he described as a “witch hunt” against former President Jair Bolsonaro.
While secondary tariffs could inflict pain on the Russian economy – severing a top source of funding for Russian President Vladimir Putin’s war effort – they also carry costs for Trump.
Oil prices will likely rise, creating political problems for him before next year’s U.S. midterm congressional elections. The tariffs would also complicate the administration’s efforts to secure trade deals with China and India.
For his part, Putin has signaled that Russia is prepared to weather any new economic hardship imposed by the U.S. and its allies.
There is “close to zero chance” Putin will agree to a ceasefire due to Trump’s threats of tariffs and sanctions on Russia, said Eugene Rumer, a former U.S. intelligence analyst for Russia who directs the Carnegie Endowment for International Peace’s Russia and Eurasia Program.
“Theoretically if you cut off Indian and Chinese purchases of oil that would be a very heavy blow to the Russian economy and to the war effort. But that isn’t going to happen,” he said, adding that the Chinese have signaled they will keep buying Russia’s oil.
The White House did not immediately respond to a request for comment.
The Russian embassy in Washington did not immediately respond.
NEW COSTS FOR RUSSIA
Secondary tariffs would hurt Russia, the world’s second leading oil exporter. The West has pressured Russia since late 2022 with a price cap on its oil exports, intended to erode Russia’s ability to fund the war. That cap has piled costs on Russia as it forced it to reroute oil exports from Europe to India and China, which have been able to import huge amounts of it at discounted prices. But the cap also kept oil flowing to global markets.
In an early sign that Putin hopes to avoid the tariffs, the White House said that Putin and Trump could meet as soon as next week, following a meeting between U.S. envoy Steve Witkoff and the Russian leader on Wednesday.
But some analysts are skeptical that Moscow is ready to stop the war.
Brett Bruen, former foreign policy adviser for former President Barack Obama now head of the Global Situation Room consultancy, cautioned that Putin has found ways to evade sanctions and other economic penalties. And even if tariffs and sanctions cut into Russia’s revenues, Putin is not under much domestic pressure.
Secondary tariffs, Bruen said, could start to cause some economic pain. “But the question is whether that really changes Putin’s behavior.”
The tariffs could also create new problems for the Trump administration as it pursues sweeping trade deals, especially with India and China.
Kimberly Donovan, a former U.S. Treasury official, said the tariffs could hamper the U.S. bilateral and trade relationships with India and China.
“You’ve got two major oil importers that can kind of dig in their heels and push back, knowing what the U.S. needs out of them,” said Donovan, now director of the Economic Statecraft Initiative in the Atlantic Council’s GeoEconomics Center.
China has demonstrated leverage over the U.S. by cutting off mineral exports and new tariffs would upset a delicate balance negotiated since May to restart those flows critical to a host of U.S. industries. India has leverage over generic pharmaceutical exports and precursor chemicals to the U.S.
Both countries say that oil purchases are a sovereign matter and contend that they are playing by the previous rules, namely the price cap on Russian crude.
RUSSIAN ROULETTE
Secondary tariffs would raise the cost of imports into the United States of products from Russia’s customers, giving them an incentive to buy their oil elsewhere. Squeezing the shipments risks spiking fuel prices and inflation around the world that could pose political difficulties for Trump.
The month after Moscow’s February 2022 invasion, fears of disruptions from Russia pushed international crude prices close to $130 per barrel, not far from their all-time high of $147. If India were to stop buying 1.7 million barrels per day of Russian crude, about 2% of global supply, world prices would jump from the current $66, analysts said.
JP Morgan analysts said this month it was “impossible” to sanction Russian oil without triggering a price jump. Any perceived disruptions to Russian shipments could propel Brent oil prices into the $80s or higher. Despite Trump’s statements that U.S. producers would step in, it would be unable to quickly ramp up, they said.
Russia could retaliate, including closing the CPC Pipeline from Kazakhstan, which could create a global supply crisis.
Western oil firms Exxon , Chevron , Shell , ENI and TotalEnergies ship up to 1 million barrels per day via CPC, which has total capacity of 1.7 million bpd.
Cullen Hendrix, senior fellow at the Peterson Institute for International Economics, said energy shocks are never welcome, especially not amidst a softening housing market and weak job growth. A key question is whether Trump can frame any economic pain as necessary to force Russia to negotiate.
“Of all his tariff gambits, this is the one that could resonate best with voters, at least in principle,” said Hendrix. “It’s also one with massive downside risks.”
(Reporting by David Lawder, Matt Spetalnick, Jonathan Landay, Timothy Gardner and Patricia Zengerle in Washington and Seher Dareen in London; writing by Timothy Gardner; editing by Don Durfee and Diane Craft)
Comments