The potential for secondary sanctions could cost Russia a quarter of its oil revenues.
Photo: Gennady Cherkasov
Donald Trump has significantly shortened the timeframe for imposing secondary sanctions against importers of Russian oil, reducing the notice period from 50 to just 10 days. According to this new ultimatum, if Moscow does not expedite the resolution of the conflict in Ukraine, goods imported into the United States from countries that continue to purchase Russian «black gold» will face a 100% tariff starting August 8th. For Russia, the repercussions of such measures could be severe, potentially leading to a loss of up to a quarter of its hydrocarbon revenues.
However, there`s no immediate need to prepare for the worst-case scenario. Key consumers of Russian raw materials have stated they will not abandon Russian energy resources, and Trump himself seems to harbor doubts about the effectiveness of this particular measure.
Trump announced the shortened ultimatum on July 29th, while returning from Scotland, where he signed a trade agreement between the U.S. and the European Commission President Ursula von der Leyen at his Trump Turnberry golf club. Consequently, the 100% tariffs on goods supplied to the United States from nations that continue to buy Russian oil could be implemented as early as August 8th.
The initial ultimatum, issued by the American president on July 14th after talks with NATO Secretary General Mark Rutte, had set a 50-day deadline, with secondary sanctions against Russian oil importers slated for September 1st. According to the White House chief, since there has been no discernible progress in the peace initiatives between Moscow and Kyiv, postponing the imposition of prohibitive tariffs on Russia`s economic partners «makes no sense.»
The revised timeline of Washington`s ultimatum did not cause significant alarm among those it targeted. Dmitry Peskov, the Russian president`s press secretary, stated that the Kremlin had noted Trump`s announcement and reiterated Moscow`s continued «commitment to a peaceful process for resolving the conflict around Ukraine.»
In announcing the shortened ultimatum, Trump admitted that he was not concerned about its impact on the oil market, asserting that American companies would increase their «black gold» production regardless. In response, commodity traders reacted with price increases: fears of supply disruptions and potential energy shortages in various parts of the world led to a 3% rise in Brent futures for October delivery on the London ICE exchange, surpassing $73 per barrel.
Experts consulted by this publication believe that even if the secondary sanctions announced by the American president are officially approved, the current largest importers of Russian oil are unlikely to abandon further purchases of energy resources from Russia. Nevertheless, certain supply difficulties may arise, necessitating adjustments and adaptations to new economic trade conditions.
Which countries are primarily targeted by Trump`s ultimatum?
Natalia Milchakova, leading analyst at Freedom Finance Global:
“Trump`s threat primarily targets major buyers of Russian oil such as China and India. In the first half of the year, Russia exported over 49 million tons of raw materials worth $25 billion to China. Although sales volumes decreased by nearly 11% compared to last year, Russia remains a key supplier of `black gold` to the Chinese market.”
“Additionally, Trump`s threat might extend to other importers receiving hydrocarbons from Russia via sea routes – including Turkey, countries in South and Southeast Asia, and some nations in Africa, Latin America, and the Caribbean.”
Fyodor Sidorov, private investor and financial analyst:
“The American leader`s decision will negatively impact the financial well-being of EU countries, which will face a 5-10% price increase for both crude oil and finished motor fuel. This will occur due to increased supplies from the U.S., which will sell its energy resources to Europe at much higher prices.”
How will importers react to Washington`s threat of increased tariffs – will they abandon Russian oil or continue purchasing Russian energy resources?
Vasily Girya, CEO of GIS Mining:
“The reaction of current buyers of Russian energy resources will most likely be restrained. Neither China nor India is interested in a direct confrontation with Washington, but they will also not completely cease purchasing hydrocarbons from Russia. There is a localized possibility that Beijing and New Delhi might try to revise supply schemes, including through third countries or offshore trading structures, as has been seen before, but such changes are more likely to be technical.”
Milchakova:
“Major consumers will certainly not stop buying oil from Russia. Some, like China, who are not afraid of further American tariffs, will continue to import raw materials openly. Others, such as India, might initially prefer to receive supplies using Russia`s `shadow` tanker fleet. It`s possible that in the event of sanctions, private Indian refineries will officially act as importers, reselling Russian oil to state-owned Indian refineries.”
Sidorov:
“The American president`s threats are an attempt to exert pressure on the sovereignty of China and India. While New Delhi still considers the possibility of abandoning Russian hydrocarbons (a stance mentioned by the country`s oil and gas minister, though contradicted by another official), Beijing staunchly defends its independence from Washington`s decisions. Recently, the U.S. exported small volumes of oil to China, but China refused to buy from American producers, opting instead for energy resources from Russia.”
“India and China are extremely interested in Russian oil. This is not just about transportation accessibility, but about the profitability for importers. By purchasing Russian hydrocarbons at a discount, they process the raw materials into finished products, utilizing their capacities and workforce, which generates additional taxes. They then resell the fuel at market prices to Europe, which formally receives products no longer of `Russian origin.` If they acquire raw materials from alternative producers, India and China would significantly reduce their margins. According to Bloomberg, in the second half of July, the price difference between Russian Urals and the benchmark North Sea Dated, which is based on the prices of five North Sea `black gold` grades including Brent, narrowed to $11.45 per barrel, reaching its lowest level since February 2022. This indicates that Russian export oil has increased in price. Importers will likely use the situation with possible 100% American tariffs as an excuse to continue purchases with a more significant discount. Apparently, New Delhi pursues these goals by declaring a suspension of Russian oil purchases by state-owned refineries due to potential Washington sanctions.”
What real risks do Trump`s threats pose for Russia?
Girya:
“The imposition of 100% tariffs negates the economic benefit of Russian oil, especially in Southeast Asia. Logistics chains, cargo insurance, and dollar settlements could be jeopardized. This would reduce export volumes and affect foreign exchange earnings. However, much depends on the actual configuration of the measures. For now, it is just a threat, not an approved sanctions package.”
Milchakova:
“The American leader`s threats pose no real risks to either Russia or the importers. Moreover, Trump himself admitted that such sanctions might not work. Even if we consider the least probable and most extreme case – the abandonment of further imports by all key buyers of Russian oil via sea transport corridors – Russia could increase supplies to the domestic market, as well as expand exports via pipelines and railways to both the near abroad (EAEU/CIS countries) and the far abroad (Hungary, Slovakia, Serbia, some regions of China). Hypothetically, Russia could lose up to 20-25% of its oil and gas budget revenues. In reality, even in the most radical scenario, Russia will remain the largest oil supplier to the post-Soviet space, and in fact, the reduction in raw material revenue will be noticeably less. Foreign currency inflows will decrease because, due to potential sanctions, an increasing share of Russian exports will be conducted in rubles. But foreign currency will still enter the country: Russian exporters and importers will use the services of foreign banks, and foreign business partners will begin opening `mirror` accounts in Russian financial institutions, through which Russian businesses can exchange rubles for foreign currency, and foreign companies can exchange foreign currency for rubles.”
What oil prices should be expected in the foreseeable future – by the end of the year? What will pricing depend on?
Girya:
“The dynamics of quotations will depend on the implementation or abandonment of new sanctions; as well as the actions of OPEC+ countries; overall demand from China; and seasonal factors.”
“In the baseline scenario, Brent could remain in the $70–75 range until the end of summer, with potential growth to $78.”
Milchakova:
“In August, global oil prices may fluctuate within $65-74. Quotations will be influenced by restrictions on Russian raw material supplies. By the end of the year, fluctuations within $63-83 per barrel are possible, depending on the presence or absence of an oil supply surplus in the market.”
