Will U.S. Tariff on Russian Oil Shift Global Alliances?

Secondary tariffs, also known as secondary sanctions, target not just Russia but also third-party countries and companies that do business with Russian oil. These sanctions aim to restrict financial and logistical support for Russian energy exports by penalizing foreign entities engaging in trade with Russia.

Thus, there could be disruptions in energy markets. The tariffs could decrease global oil supply, driving up prices. The countries heavily reliant on Russian oil such as India and China, may face new trade challenges. Other suppliers such as the Middle East, the U.S., and Latin America might gain market share.

Why is the U.S. Targeting Russian Oil with Secondary Tariffs?

The United States is considering imposing secondary tariffs on Russian oil to exert pressure on Russia regarding its actions in Ukraine. President Donald Trump has threatened tariffs ranging from 25% to 50% on nations purchasing Russian oil if Russia obstructs efforts to conclude the war in Ukraine.

Furthermore, these proposed tariffs are going to impact countries like China and India significantly. In 2020, the U.S. imported approximately 27.7 million barrels of Russian crude oil, accounting for only 1.3% of its total crude oil imports that year. By January 2021, Russian oil imports constituted 8% of total U.S. oil imports, up from 4% in 2018.

The U.S. is aiming to leverage these secondary tariffs to decrease the oil revenue of Russia, which are vital for financing its military operations. This reduction in oil exports could significantly impact the Russian economy, as oil exports are a substantial source of national income. For instance, in 2020, Russia exported around 5.5 million barrels per day of crude oil and condensates.

Impact on Key Russian Oil Buyers: China and India

India and China are the two largest buyers of Russian oil, playing an important role in Russia’s energy export revenue. If the U.S. imposes secondary tariffs on Russian oil, both nations will face significant economic and strategic decisions.

1. China’s Dependence on Russian Oil

The top crude oil supplier of China is Russia, surpassing Saudi Arabia. In 2023, China imported 2.13 million barrels per day (bdp), accounting for 17% of its total crude imports.
China often buys discounted Russian crude, paying in yuan instead of U.S. dollars to bypass Western sanctions.
If the U.S. enforces secondary tariffs, Chinese refiners may seek alternative suppliers like Saudi Arabia, Iran, or Venezuela, potentially at higher costs.

2. India’s Role in Russian Oil Trade

India has increased its purchases of Russian oil significantly since Western sanctions started. In 2024, Russia supplied around 40% of India’s crude imports which is a sharp rise from 2% in 2021.
Indian refiners benefit from steep discounts, helping keep domestic fuel prices lower.
If the U.S. imposes tariffs, India could face diplomatic pressure to decrease Russian oil imports or find alternative payment methods, such as rupee-ruble trade.

3. Possible Reactions from China and India

Both China and India might reject the U.S. pressure and continue buying Russian oil, as they did after the previous sanctions.
Both countries could increase non-dollar transactions, using local currencies or digital payment systems to avoid penalties.
China might offer Russian financial support to counteract revenue losses.
If secondary tariffs make Russian oil too costly, China and India may turn to Middle Eastern, African or Latin American suppliers.
Due to these reactions, Saudi Arabia, Iraq and the UAE could benefit from increased demands.
The tariffs could strengthen ties between Russia, China and India, pushing them toward close economic and political cooperation.
There can be a potential emergence of an “East vs West” energy divide, with BRICS nations trading more among themselves while Western nations tighten sanctions on Russia.

Will U.S. Tariffs Reshape Global Alliances?

The United States’ recent implementation of secondary tariffs on Russian oil is poised to significantly influence global alliances and trade dynamics. These steps, introduced between 2023 and 2025, are aiming to pressure Russia amidst ongoing geopolitical tension particularly concerning the conflict in Ukraine. The key developments are:

March 2025 Tariffs: President Donald Trump signed an executive order imposing a 25% tariff on nations purchasing oil from Venezuela and threatened secondary tariffs of 25% to 50% on countries buying Russian oil unless Russia agreed to a peace treaty with Ukraine.
November 2023 U.S. Imports: Despite sanctions, the U.S. imported $749,500 worth of Russian-origin crude oil, marking the first transaction since the April 2022 ban.
G-7 Price Cap Discussion: In December 2024, G-7 nations considered tightening the price cap on Russian oil, exploring options like replacing them with a full ban or lowering the threshold from $60 to $40 to limit Russia’s revenue.

Their possible impact on global alliances:

Strained Relations with Allies: The U.S. tariffs have led to tension with the traditional allies, notably the European Union and Canada, who view these measures as protectionist and disruptive to creating trade norms.
Strengthened Ties with non-Western partners: Countries like China and India have deepened their relationship with Russia, capitalizing on discounted oil prices. This shift has enhanced Russia’s economic ties with these nations, potentially altering global trade routes and energy dependencies.

How Secondary Tariffs Could Disrupt the Global Oil Market?

The imposition of secondary tariffs by the U.S. on Russian oil is introducing disruption to the global oil market. These measures are mostly influencing chains, pricing, and international relations.

1. Supply Constraints and Price Volatility

Decreased Supply: The tariffs are expected to remove up to 900,000 barrels per day of Russian oil from global markets, tightening supply.
Price Fluctuations: Brent crude prices have seen modest increases, with a 16-cent rise to $74.93 per barrel, as markets react to potential supply disruptions.

2. Impact on Major Importers

China and India: Both nations, significant buyers of Russian oil, face economic challenges due to the tariffs. China’s imports from Russia accounted for 17% of their total crude imports in 2023, while India’s imports surged from 2% in 2021 to 40% in 2024.

3. Refining Sector Challenges:

Increased Costs: Domestic refines in tariff-affected countries may encounter higher input costs, leading to a potential increase in fuel prices for consumers.
Operational Adjustments: Refineries may need to alter operations, such as adjusting crude oil slates or investing in technology to process alternative feedstocks.

4. Geopolitical and Economic Ramifications

Trade Tension: The tariffs contribute to escalating trade tension, with countries like China considering retaliatory measures, affecting global trade dynamics.
Economic Growth Concerns: Prolonged tariffs could lead to demand slump, with the International Energy Agency projecting a 600,000 bpd global oil supply overhang in 2025, dampening economic growth.

Conclusion

To sum up, the U.S. secondary tariffs on Russian oil are poised to reshape global oil markets by disrupting supply chains, increasing prices, and prompting strategic shifts in energy trade.

While countries China and India may resist U.S. pressure, they could face economic challenges and may seek alternative suppliers or payment methods. These tariffs might strengthen relations with non-Western nations.