US President Donald Trump is unlikely to follow through on his threat to impose 100% tariffs on countries buying Russian oil, as it would exacerbate politically damaging inflationary pressures. Similar threats against Venezuelan oil buyers have also met with limited success, particularly in China.

This month, Trump said he would impose 100% secondary tariffs on countries buying Russian exports unless Moscow agrees to a major peace deal with Ukraine within 50 days, a deadline that expires in early September.

The threat mirrors the March announcement that the US would impose tariffs on buyers of sanctioned Venezuelan oil. Such tariffs have not been imposed since then, even though Venezuelan oil exports have surged. "We think secondary tariffs are probably too blunt an instrument for the administration to use against Russia," said Fernando Ferreira, director of geopolitical risk services at the consultancy Rapidan Energy Group.

"If you're willing to use the nuclear option of removing more than 4.5 million barrels per day from the market, and you're willing to cut off commercial ties with other countries because they import Russian oil, you're going to run the risk of a major spike in oil prices and global economic collapse."

Clay Seigle, senior fellow and James Schlesinger chair in energy and geopolitics at the Center for Strategic and International Studies, said that if a 100% tariff were fully imposed on countries receiving Russian barrels, it could potentially cut off global supply and push prices higher.

Analysts and traders are highly skeptical that Trump would allow that to happen for two reasons, Seigle said. "First, he's very sensitive to high oil prices and wants to avoid that." Second, Trump prefers to work out bilateral deals rather than adhere to any strict formula that would limit his negotiating power.

"Some of the U.S.'s trading partners might, like oil traders, dismiss this as mere bluff," Seigle said.

On July 16, two days after issuing the tariff threat, Trump said oil prices of $64 per barrel were a "great" level, that his administration was working to lower them a little further, and that low levels were "one of the reasons inflation is under control."

Since then, oil prices have remained in the mid-$60s, downplaying the threat of imminent supply disruptions.

Seigle said Trump's ongoing trade war, particularly his tariffs on steel, could push commodity prices higher for oil drillers in the United States, the world's largest crude producer. That could raise oil prices just as the US congressional midterm elections begin next year.

Trump's Republican Party holds slim majorities in the US House of Representatives and Senate, and the president is likely to avoid actions that could raise oil prices during the campaign, analysts say. White House spokeswoman Anna Kelly said Trump has proven he keeps his promises. "He's been very tough on (Russian President Vladimir) Putin and smartly kept all options open while maintaining existing sanctions – and recently threatened Putin with tariffs and tougher sanctions if he doesn't agree to a ceasefire."

The Treasury Department, which administers sanctions, said it was ready to act. "As President Trump announced, Russia has 50 days to agree to a deal to end the war, or the United States is prepared to impose even more severe secondary sanctions," a spokesperson said. (alg)

Source: Reuters