Trump's Russian Oil Sanctions Threat: A Negotiating Tactic or Reality?

Former U.S. President Donald Trump has threatened to impose secondary sanctions aimed at cutting off Russian oil revenues, potentially dealing a severe blow to Moscow's finances. However, the market appears skeptical about the implementation of these threats, believing that such a move could lead to soaring energy prices, something Washington is keen to avoid.

Trump issued this warning during a meeting with NATO Secretary General Mark Rutte at the White House, stating that he would impose "very tough" tariffs on Russia if an agreement to end the Ukrainian conflict is not reached within 50 days. While Trump did not disclose the details, a White House official later indicated that the new sanctions would include a 100% tariff on Russian goods imported into the United States, as well as a secondary 100% tariff on countries that buy Russian oil. If implemented, these sanctions would represent a significant escalation of the economic war waged by Western countries against Russia since the start of the conflict in Ukraine in February 2022.

But oil traders don't seem to be taking these threats seriously. After Trump's announcement, oil prices actually fell by more than a dollar, suggesting that investors believe the likelihood of him fulfilling his threats is slim. This is because the imposition of effective secondary sanctions on Russian oil by the United States could lead to a significant increase in global energy prices, further fueling inflation and harming American consumers - something Trump would not want to see.

In fact, investors seem to believe that the more extreme Trump's threat, the less likely it is to be realized. This may be a reasonable bet, but it carries risks.

Russian Oil: A Major Player in the Global Energy Market

For Russia, the stakes in the energy market are extremely high. Russia is the world's third-largest oil producer after the United States and Saudi Arabia. Its daily oil production in June reached 9.8 million barrels, representing nearly a tenth of global supplies. According to data from the International Energy Agency (IEA), Russia's daily exports of crude oil amounted to 4.68 million barrels in June, while exports of refined products reached 2.5 million barrels, with a total value of $13.6 billion. China, India, and Turkey are the main buyers of Russian crude oil.

In recent years, oil and gas-related taxes and export duties have accounted for between 30% and 50% of the Russian federal budget, making it the Kremlin's most important source of cash.

Since 2022, the United States and its European allies have imposed severe economic sanctions on Russia and have stopped most of their direct purchases of Russian oil. This has had a significant impact on Europe in particular: before the Ukrainian conflict, nearly a third of European oil depended on Russia, while the share of Russian crude oil in European imports has fallen to less than 5%.

Impact of Existing Sanctions and Implementation Challenges

It is worth noting that Western governments were careful when formulating these sanctions to avoid causing significant price shocks. Current measures include sanctions on Russian oil tankers, as well as setting a price cap for Russian crude oil at $60 per barrel, exceeding this price being considered a violation of sanctions. The European Union is currently considering a new set of sanctions, which would lower the price cap and stop importing all types of fossil fuels from Russia by 2027.

The current sanctions have already damaged the Kremlin's revenues, but their implementation poses a significant challenge. Moscow has built a massive "shadow fleet" that transports oil around the world through non-Western financing and insurance channels.

Meanwhile, refineries in countries that currently import Russian crude oil benefit from cheap raw materials. Ironically, these countries are also able to increase their exports of fuel to Europe, as Europe seeks alternatives to direct Russian supplies.

Therefore, the imposition of secondary tariffs on Russian crude oil may weaken Russia's ability to circumvent existing sanctions, significantly reducing its oil exports.

However, the market still seems to believe that Trump's latest threat is nothing more than a negotiating tactic - he is trying to pressure Putin to force him to agree to a ceasefire.

A New Dilemma in Energy Market Forecasting

The lukewarm reaction from traders to Trump's latest threat highlights how different and challenging forecasting in the energy market is during Trump's second term. Usually, forecasts in physical markets such as oil and gas depend on actual supply and demand conditions. It is true that investor sentiment has an impact, but it is usually much less important than stock markets.

But at present, investors often have to guess whether the statements of the U.S. President, which are often exaggerated, are just a negotiating tool (as seems to be the case with the "Liberation Day" tariff on April 2), or whether they will actually be realized (such as a U.S. strike on Iranian nuclear facilities). What's more complicated is that the market's reaction itself may affect Trump's final decision.

This volatile environment may be favorable to traders who prefer risk, but for others, it will be very difficult.