Despite facing extensive international sanctions, Russia has leveraged its substantial energy resources to finance its ongoing war in Ukraine.
President Trump is seeking to alter this dynamic. He has announced the implementation of broad secondary tariffs targeting any nation continuing trade relations with Russia, contingent on a ceasefire agreement with Ukraine being reached by Friday, August 8.
These secondary tariffs would impose a 100% tax on goods from countries that maintain trade with Russia upon their import into the United States.
Oil and gas constitute Russia’s primary exports, with China, India, and Turkey among its largest customers.
“I used trade for a lot of things, but it’s great for settling wars”, said Trump last month.
This would not represent the first instance of the Trump administration employing secondary tariffs, as they are currently in place to penalize purchasers of Venezuelan oil.
However, their application against Russia would carry significantly greater implications for the global economy.
Russia remains the world’s third-largest oil producer, trailing only Saudi Arabia and the United States. Nevertheless, its export volumes have experienced a decline this year, according to a Bloomberg analysis of ship-tracking data.
“The primary mechanism through which secondary tariffs on purchasers of Russian energy could impact the global economy would be through fluctuations in energy prices,” notes Kieran Tompkins from Capital Economics.
If effective, the tariffs would curtail the flow of Russian oil and gas to international markets.
Consequently, reduced supply could drive prices upward, mirroring the surge observed following Russia’s full-scale invasion of Ukraine in 2022, which triggered a global inflationary spike. President Trump asserts that he is unconcerned due to record US oil production.
Mr. Tompkins further suggests that other factors mitigate the potential impact on prices this time.
He explains that “the current backdrop is one where OPEC+ [the group of major oil producing countries and its allies] have significant spare capacity to draw upon.”
Russia has developed an elaborate system for circumventing existing sanctions, which could be adapted by its trading partners to evade the secondary tariffs threatened by Trump.
For example, its so-called “shadow fleet” – comprising hundreds of tankers with obscured ownership – could be employed to conceal the origin of exported Russian oil and gas.
“Sanctions maintenance is as big a task as the imposition of sanctions in the first place,” US sanctions expert Richard Nephew of Columbia University says.
“That’s because the party that is being sanctioned takes steps to evade them.”
Since the full-scale invasion of Ukraine in 2022 India has been the second biggest buyer of Russian oil, according to the Centre for Research on Energy and Clean Air.
“They’re fuelling the war machine. And if they’re going to do that, then I’m not going to be happy,” President Trump told US outlet CNBC on Tuesday.
Should secondary sanctions take effect, US companies importing goods from India would face a 100% import tax—or tariff—upon those products’ arrival in the United States.
The intention is to render these goods so costly that US businesses opt for cheaper alternatives elsewhere, thereby reducing revenue for India.
This, in turn, is intended to deter India from purchasing Russian oil. Should Russia be unable to sell its oil elsewhere due to other countries facing the same predicament, its capacity to finance the war in Ukraine would diminish.
One potential consequence of the new secondary tariffs for Americans could be higher prices for mobile phones imported from India.
US firm Apple is shifting a significant portion of its iPhone production to India—particularly the manufacturing of handsets intended for sale in the US.
If these products are subject to the new tariffs, prices could double for US consumers, as tariffs are typically borne by importing companies, who then pass these increased costs onto their customers.
Imports to the US from India are already facing a 25% tariff as part of President Trump’s broader trade shake-up, and he told CNBC that number could be raised “very substantially”.
India’s government has accused the US of double standards, pointing to Washington’s own continued trade with Russia.
The vast majority of that trade is made up of US imports from India which amounted to just over $3bn (£2.2bn) last year – although that’s just 10% of 2021 levels.
That trade is dominated by US purchases of raw materials for nuclear energy and fertilizers. Russia is a major global supplier of both.
China represents the largest purchaser of Russian oil, and any decision by President Trump to impose secondary tariffs on Chinese goods would present considerably greater challenges.
This is due to the fact that US imports from China are five times greater than those from India, with a larger proportion comprising consumer goods such as toys, clothing, and electronics.
Secondary tariffs targeting Beijing would also risk disrupting a much broader renegotiation of trade between the world’s two largest economies that Trump has been pursuing since his first term in office.
“This type of over-escalation is unlikely to impress the Chinese,” says trade expert Professor Simon Evenett of IMD Business School.
He explains that it would be “very difficult” to peel the Chinese away from the Russians without a good reason, given how closely Presidents Xi and Putin have worked together in recent years.
On top of that, the last time Trump tried using triple-figure tariffs against China, he found it did not work – as it almost cut off all trade between the two countries.
Another move like that could add to inflationary pressures in the US, which Trump has long pledged to tackle.
It could also cost huge amounts of manufacturing jobs in China, at a time when its economy is already struggling on several fronts.
Analysis by the Finland-based Centre for Research and Clean Air shows that the EU and Turkey are also still amongst the biggest buyers of Russian energy.
Before 2022, the EU was the number-one export destination for Russia, although that has been vastly reduced since the full-scale invasion of Ukraine. Brussels recently agreed to buy a lot more energy from the US, but some imports from Russia remain.
In June, the president of the European Commission, Ursula von der Leyen, acknowledged the problem, saying “Russia has repeatedly attempted to blackmail us by weaponizing its energy supplies” as she laid out plans to end imports by the end of 2027.
The US-EU trade relationship is the biggest in the world, and the pair have just negotiated new trade terms which will see a 15% tariff be applied on most EU exports to the US.
Many in the EU criticised that deal, saying the tariffs would harm European exporters.
Now they also fear that secondary sanctions on the EU could do even more harm. Adding 100% tariffs for buying Russian energy could significantly reduce the amount of goods sold by the EU to the US.
However the biggest sellers include pharmaceuticals and machinery, which may be hard to source from elsewhere – meaning Americans have little choice but to pay more.
Russia’s own economy has so far proven remarkably resilient since the full-scale invasion of Ukraine began, growing 4.3% last year.
However, Economy Minister Maxim Reshetnikov recently warned that the country was “on the verge” of recession after a period of “overheating”. The International Monetary Fund (IMF) is forecasting growth of just 0.9% this year.
If the secondary sanctions are successful in reducing demand for exports, they will push Russia closer to recession.
The exact impact of the war on Russia’s economy is hard to know, because Moscow has prevented a large amount of economic data from being published since the full-scale invasion – including on oil and gas production.
About a third of Russian government spending is funded by oil and gas money, but exports have been falling.
Meanwhile, Putin is directing a bigger share of spending towards defence than at any time since the Cold War. Defence spending is believed to have reached 6.3% of GDP.
By contrast, Ukraine has been spending a huge 26% of the value of its far-smaller economy on the war. The difference explains why its president, Volodymyr Zelensky, has repeatedly asked for external help from his allies.
Trump’s tariffs are intended to help Zelensky by cutting the amount of money flowing into Russia, and he hopes bring an end to the death, suffering and destruction in Ukraine.
The US president has called on Apple to do more of its manufacturing in the US.
India, which now faces among the highest tariff rates imposed by the US, called the levy “unjustified and unreasonable”.
The colourful accessories chain says sales are down as online competitors and higher costs eat into profits.
Trump’s tariff threats and social media outbursts have raised concerns about the state of India-US relations.
Despite President Trump’s threat of sweeping sanctions, expectations for a ceasefire between Moscow and Kyiv are muted.