(Reuters) – U.S. President Donald Trump’s threat to impose secondary tariffs of 25% to 50% on buyers of Russian crude oil is just crazy and bold enough to perhaps achieve his stated aim of a ceasefire in Ukraine.
What matters now is the reaction of the other three key players to this latest move by the mercurial and inconsistent U.S. leader.
Do Russian President Vladimir Putin, Indian Prime Minister Narendra Modi and Chinese President Xi Jinping believe that Trump will actually follow through, and if he does what will it mean for their energy situation?
India and China are effectively the only major buyers of Russian oil, so their reaction becomes as important as Putin’s response to Trump’s latest shift.
Trump told NBC News he is “pissed off” at Putin and will impose the tariffs of up to 50% on buyers of Russian crude if he feels Moscow is blocking efforts to bring about peace in Ukraine.
“If Russia and I are unable to make a deal on stopping the bloodshed in Ukraine, and if I think it was Russia’s fault… I am going to put secondary tariffs on oil, on all oil coming out of Russia,” Trump said.
This is an apparent reversal of his previous friendly stance toward Putin, which had drawn widespread criticism for effectively abandoning Ukraine to its invader and surrendering to Russia’s aggression.
The question is whether Trump’s threat is credible and likely to come to fruition, which is the assessment Russia, China and India must make.
If Putin believes Trump will go ahead and massively boost what are effectively sanctions on Russia’s main export, he may be inclined to back down at least far enough to allow Trump to appear to have “won” in negotiations.
India is in an uncomfortable position as Modi has so far adopted a stance of trying to appease Trump, with a proposal to scrap the import duty on U.S. liquefied natural gas in order to boost purchases an example.
But India has also been a significant beneficiary of much of the rest of the world shunning Russian crude, allowing the South Asian nation to snap up discounted cargoes so much so that Russia is now its largest supplier.
India is expected to import 1.52 million barrels per day (bpd) of Russian oil in March, representing just under 30% of its total arrivals, according to data compiled by LSEG Oil Research.
With India already not buying crude from Iran because of U.S. sanctions, replacing Russian barrels as well would likely lead to a significant boost to India’s oil import costs and a scramble to find alternative suppliers.
CHINA RISK
China is less likely to bow to U.S. pressure as it remains the only major buyer of Iranian crude, and is still a top importer of Russian oil, buying up to 1 million bpd from the seaborne market, as well as just under that level via pipeline.
The risk for Beijing is that an additional tariff of up to 50% on U.S. imports from China, on top of the 20% already imposed by Trump, would bring about real levels of pain in its economy, which is already struggling to build momentum.
If Trump’s threat of secondary tariffs on buyers of Russian crude is credible, it also alters the dynamics of the OPEC+ group of exporters, which consists of the Organization of the Petroleum Exporting Countries and allies including Russia.
For OPEC+ members other than Russia, any reduction in Russian barrels on global markets will likely serve to boost prices, which will allow them to increase their own production and exports.
In some ways it becomes a battle of self-interest versus group solidarity, and with the fiscal positions of many OPEC+ members weakening, the lure of more money from higher exports may be hard to resist.
For now, the various players are likely to respond cautiously, at least in public, while they try to work out whether Trump is serious or whether his new tariff threat is a thought bubble easily discarded with the next shift in sentiment.
Certainly, the initial market reaction was subdued, with global benchmark Brent futures rising a modest 0.3% to $73.84 a barrel in early Asian trade on Monday.
The views expressed here are those of the author, a columnist for Reuters.
Editing by Sonali Paul
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