Oil markets have largely ignored Trump’s threats to impose 100% secondary tariffs on any country that buys Russian exports, with prices dropping significantly on Tuesday morning.
U.S. President Donald Trump’s threat to choke off Russia’s oil revenue via secondary sanctions would deal a hammer blow to Moscow’s finances, but markets are betting that the risk of higher energy prices will keep Washington from following through.
Speaking at the White House on Monday alongside NATO Secretary General Mark Rutte, Trump warned that he would hit Moscow with “very severe” tariffs if a deal to end the war in Ukraine is not reached within 50 days.
Trump did not provide any details, but a White House official later said the new sanctions would include 100% tariffs on Russian exports to the U.S. as well as 100% secondary tariffs on countries that buy oil from Moscow.
If enacted, these sanctions would drastically escalate the economic war the West has waged against Russia since it invaded Ukraine in February 2022.
But oil traders are not buying it. Oil prices actually dropped by more than $1 after Trump’s announcement, signalling that investors think there is a low probability that Trump will make good on his threat.
That’s because effective U.S. secondary sanctions on Russian oil would most likely lead to a sharp increase in global energy prices, putting upward pressure on global inflation, ultimately hurting U.S. consumers, something Trump is loath to do.
In effect, investors are betting that the more extreme a Trump threat is, the less likely it is to be realized. That may be a decent bet, but it’s also a risky one.
Source : Reuters