Will Trump's Oil Sanction Threats Fail? Analysts Give Two Reasons

• Russia is underway for a 50-day period to conclude a peace agreement with Ukraine, under threat of imposing 100% sanctions on countries purchasing Russian oil.
• Experts doubt whether the US president will take such a drastic step in the event of a lack of agreement.
• The example of similar sanctions on Venezuelan oil has shown that this is not an effective mechanism

As reported by Reuters, Trump announced this month that he would impose 100% secondary tariffs on countries buying Russian exports unless Moscow agrees to a substantive peace agreement with Ukraine within 50 days, a deadline that expires in early September.

Trump is gambling with the collapse of the global economy

The threat followed a March announcement that the United States would impose tariffs on buyers of sanctioned Venezuelan oil . No such tariffs have been imposed since then, even as Venezuelan oil exports have surged .

"We believe secondary tariffs may be too clunky an instrument for the administration to use," said Fernando Ferreira, director of geopolitical risk at consulting firm Rapidan Energy Group. "If you are willing to go nuclear, removing more than 4.5 million barrels of oil per day from the market , and you are willing to cut off trade relations with other countries because they import Russian oil, you risk a sharp rise in oil prices and a collapse of the global economy ," the expert added, as quoted by Reuters.

Clay Seigle, senior fellow and James Schlesinger Chair for Energy and Geopolitics at the Center for Strategic and International Studies, said the full implementation of a 100% tariff on countries that receive Russian barrels could potentially reduce global supplies and lead to higher prices.

" Analysts and traders are deeply skeptical that Trump will allow this to happen for two reasons . First, he is very sensitive to high oil prices and will want to avoid such a scenario. Second, Trump prefers to conclude bilateral agreements rather than stick to rigid formulas that would limit his freedom of negotiation. Some of the U.S. oil trading partners, like oil traders, may dismiss this as a showoff," Seigle said.

On July 16, two days after announcing the tariff threat, Trump said that the $64 a barrel oil price was a "great level" and that his administration was trying to lower it even further, and that the low level was "one of the reasons why inflation is under control."

Since then, oil prices have remained around $65, ignoring the threat of imminent supply disruptions.

Clay Seigle said Trump's ongoing trade war, particularly steel tariffs, could drive up commodity prices for oil companies in the United States, the world's largest oil producer. This could boost oil prices just before the U.S. midterm elections next year.

Trump's Republicans have slim majorities in both the House of Representatives and the US Senate, analysts say, and the president is likely to avoid actions that will raise oil prices during the campaign.

White House spokeswoman Anna Kelly said Trump has proven he keeps his promises.

“He has been incredibly tough on Vladimir Putin and wisely ruled out all options while leaving existing sanctions intact – and most recently, he threatened Putin with severe tariffs and sanctions if he did not agree to a ceasefire,” Kelly said.

The Treasury Department, which administers sanctions, said it was ready to act.

"As President Trump announced, Russia has 50 days to conclude an agreement to end the war, otherwise the United States is ready to impose severe secondary sanctions," the spokesman said.

The Trump administration’s lax enforcement of its threat to impose 25% tariffs on buyers of Venezuelan crude oil in March and the lack of effective energy sanctions against Russia to date are two other reasons for market participants’ skepticism .

China is increasing its oil imports from Venezuela despite U.S. sanctions.

China, Venezuela's main oil buyer, has been adjusting to US sanctions on oil exports since they were introduced in 2019.

According to Reuters sources, over the past year China has bought more than $1 billion worth of Venezuelan oil, only to have it rebranded as Brazilian oil.

Venezuelan exports surged in June as the loss of American and European buyers was offset by cargoes sent to China.

According to Reuters sources, Indian oil refineries, the main buyers of Russian oil, do not believe that Trump will carry out his threats and have no plans to suspend purchases of Russian oil.

India's imports of Russian oil rose by about 1% in the first half of this year, with refiners Reliance Industries and Nayara Energy accounting for almost half of total purchases from Moscow.

However, Oil Minister Hardeep Singh Puri said that the world's third-largest oil importer and consumer is confident that in the event of problems with Russian supplies, it will be able to meet its needs through alternative sources.