Geopolitical Report (Special)
China and India, the two largest buyers of Russian crude oil, do not yet appear to be in a panic over the prospect of the United States imposing so-called "secondary tariffs" on countries that rely on Russian energy imports - with several sources noting that US President Donald Trump's policies are constantly changing. On Monday, Trump warned that Washington would impose 100 percent secondary tariffs "if an agreement on the Russian-Ukrainian war is not reached within 50 days." The tariffs would target exports from countries that buy Russian energy to the United States.
What remains to be seen is whether key countries such as China, India and Turkey will seek to increase their purchases of Russian crude and products in the coming weeks, including to stockpile quantities before the 50-day deadline expires. China and India each import about 2 million barrels per day of Russian crude, and Turkey imports about 300,000 barrels per day. So far, Russia's offshore exports to India and Turkey have increased in the first half of July.
"I wouldn't rule out that China intends to load some Russian cargoes early before the deadline in anticipation that Trump may not back down this time," a senior China-focused oil analyst at data analytics firm Kpler told Energy Intelligence. "But the quantities they can pre-load may be limited, as Russia's crude oil exports are expected to decline as domestic refineries ramp up operating rates during the summer season, and India and other buyers such as Turkey may consider the same." Some Chinese traders involved in Russian fuel oil trading said they had not seen any impact so far on buying plans. They added: People don't pay much attention to Trump these days. Buyers don't pay much attention to U.S. policies. Trump threatened in March to impose tariffs of between 25 percent and 50 percent on Russian oil buyers, and Congress is also seeking a secondary 500 percent tariff through separate legislation that has been temporarily shelved.
China's strong response and the volatility of U.S. policy
China's strong response to Trump's previous tariffs is seen as a potential deterrent. An Asian source familiar with the Chinese market said he doubted Beijing would succumb to the pressure of secondary tariffs on Russian oil, noting that Trump previously could not withstand the pressure when China retaliated with 125% tariffs on U.S. imports. "China's principle is reciprocity," a Petrochina LNG trader said, adding that Chinese buyers are not worried. "Let's wait for a taco," he said, referring to the acronym for "Trump Always Chickens Out." A crude oil trader working for an international trading company that supplies independent Chinese refineries saw the threat of tariffs as a bargaining chip, also noting the lack of a similar move on other files: "If Trump is serious about imposing tariffs on Russia, let him first start with Venezuela's secondary tariffs." He noted that China buys large amounts of crude oil from Venezuela as well. Trump signed an executive order in March stating that countries buying oil or gas from Venezuela could face a 25 percent tariff on all trade with the United States.
Another source at a Chinese refinery that buys Russian oil said the great uncertainty in Trump's policies makes it difficult to assess the potential effects of secondary tariffs on the market. "I feel it's pointless to think about this now. Trump's policies are constantly changing," said another source from a refinery in Northeast Asia: "I don't know what is real anymore." In India, traders also emphasized the uncertainty over Trump's next move: He announces and then backtracks on the same statements, they told Energy Intelligence, and officials pointed to constant changes in tariff rates. They added that if Trump follows through on the threat, the damage will come back to the U.S. itself - through higher prices.
An uncomfortable reality for India, gains for China?
Indian refiners don't want anyone to spoil their three-year "crude import bonanza" with Russia, which is currently India's largest oil supplier - accounting for 40% of its imports. They agree that prices for medium-sour crude grades will rise if Russian supplies are interrupted. India is more likely - compared to China, which has imposed strict retaliatory tariffs on the U.S. and does not recognize unilateral sanctions - to reduce or avoid buying Russian oil in response to U.S. secondary tariffs, given India's more flexible relationship with the United States. China usually buys limited quantities of Russia's medium-acid Ural crude. But India curtailing its purchases due to the threat of tariffs could work in China's favor, as it could drive Ural crude prices down enough to make it economically viable for Chinese refineries, according to one source in the Asian market and another at a Chinese refinery. The likely result would be more Russian crude available to Chinese refineries, and at cheaper prices, according to a source in the Chinese market. India's imports of Russian oil have averaged 1.8 million bpd this year through mid-July - of which 74%, or 1.32 million bpd, is Ural crude and the rest is lighter crudes, according to ship-tracking data from Kepler.
Russian oil is sold at a discount of $2-3 per barrel over Brent crude on a delivered basis to Indian refineries. The imposition of secondary duties could result in India losing that discounted crude and having to pay a premium for alternatives, two refining industry officials said. In 2021, Russia accounted for less than 2% of India's imports. A refinery official said: "We were getting our supplies from the Middle East, West Africa and the US." But today, the situation is more complicated, according to another official: "Our refineries are designed to process heavier, more sulfurous grades of oil, which are hard to come by globally. It has to come from the Middle East," he added. The Persian Gulf accounted for 42% of India's crude oil imports this year. But sourcing crudes such as Arabian Medium, Basra and Marban will become expensive if Trump's 100 percent tariffs block Russian oil, a senior trader at a refinery said. "Aramco will raise official prices," he added.
Russia's reaction
As for Russia, it doesn't care about Trump's ultimatum, according to Deputy Chairman of the Russian Security Council Dmitry Medvedev. He wrote on the X platform: "Trump issued a decorative ultimatum to the Kremlin. "The world trembled, awaiting the consequences. Hardline Europe was disappointed. Russia didn't care." Kremlin spokesman Dmitry Peskov said Trump's remarks were "rather serious," noting that the Kremlin needs time to analyze them. Analysts agree that the ultimatum is seen in Moscow as unacceptable, and Russia is unlikely to succumb to pressure. But opinions differ on how Russia's trading partners will react.
Conclusions
- Indeed, the proliferation of statements from Trump has made it difficult to speculate on the courses of action that the United States may adopt, especially since they may be multifaceted, as happened in the indirect Iranian-American negotiations, in reference to the 60-day deadline that Trump gave the Iranians, which then led to the outbreak of a direct war between the Zionist entity and the Iranians and the official entry of the Americans into the war and targeting Iranian reactors with direct US bombing.
- Potential increased purchases by China and India will push up the price of Russian crude, which is relatively cheaper than other sour and medium-sour oils and will allow competing Middle Eastern oils to better find their way into Chinese refineries. If these tariffs are imposed, the matter will be reversed, making Russian oil cheaper and raising the prices of Middle Eastern oils.
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