Why the oil market does not believe Trump’s threats to tariff countries that buy Russian crude

The oil market is shrugging off President Donald Trump’s threats to impose heavy tariffs on countries that buy Russian energy exports.

Trump has given Russia until Friday to agree to a ceasefire in Ukraine. If Moscow does not comply, the U.S. will impose 100% “secondary tariffs” on countries that buy Russian exports, the president has said. This would in theory force countries to choose between buying Russian oil or trading with the U.S.

India, China and Turkey are the most exposed as the three biggest importers of Russian oil. Trump on Wednesday targeted India with a 25% tariff for buying Russian crude, a much lower rate than the 100% penalty he originally threatened. Oil prices closed 1% lower as traders seem to believe the president is bluffing and the tariff won’t really go into effect.

“Given the price response to the news, it would appear that current threats are considered a negotiation tactic by Trump and little more,” Matt Smith, an oil analyst at Kpler, told CNBC.

India is Russia’s biggest oil customer, importing about 1.7 million barrels per day, according to Kpler data. If Trump follows through on the tariff, oil prices would jump because barrels that Russia exports to India cannot be easily rerouted to other destinations, Smith said. Moscow would have to shut in some production, which would take supply out of the global market, he said.

But the market senses right now that Trump is going to back down, said Bob McNally, president of Rapidan Energy. The additional tariff against India does not go into effect for 21 days, providing time for the countries to reach an agreement.

“Traders believe that there will be a deal, that it really won’t go into effect,” McNally told CNBC. “And if it did, India would probably just pay the tariffs and keep importing Russian oil,” he said of traders’ thinking.

The Trump administration has not always backed up its words with actions when it comes to energy sanctions, said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a note to clients. Iran’s oil exports, for example, remain elevated despite declarations from the White House that it is imposing a maximum pressure campaign, Croft said.

“Our base case is that Russia will resist making serious concessions, believing that President Trump will blink at imposing measures that could push energy prices materially higher and that the White House’s newfound support for Ukraine will dissipate,” Croft told clients in the July 30 note.

Steep tariffs on Russian oil buyers would jeopardize Trump’s push to reduce energy prices. The president said last month that he wants U.S. crude prices to fall below $64 per barrel. In an interview with CNBC Tuesday, the president said low oil prices would force Russia to end its war in Ukraine.

“If you sanction hard enough that Russia can’t sell its oil, prices at the pump will soar — that’s just the barrel math,” McNally said.

Trump seemed to acknowledge Wednesday that there would not be ceasefire by his deadline. He said his special envoy Steve Witkoff “had a highly productive meeting with Russian President Vladimir Putin.”

“Everyone agrees this War must come to a close, and we will work towards that in the days and weeks to come,” Trump said in a post on Truth Social.

Trump and Putin have agreed in principle to meet in the coming days, according to the Kremlin. If Putin refuses to make concessions, Trump will likely continue down the road of energy sanctions, McNally said. This includes targeting big importers of Russian oil, namely China.

“He will have to go gingerly because of the blowback risk in terms of higher oil prices,” McNally said. “He has to do so in a way that isn’t counterproductive and that’s a tricky problem to solve.”