President Donald Trump has escalated trade tensions by imposing a new 25 per cent tariff on imports from India, bringing the total tariff rate on Indian goods to 50 per cent. This decision, announced through an executive order signed on March 15, 2024, comes in response to India’s continued import of oil from Russia, which Trump claims is fueling the ongoing conflict in Ukraine.
In a statement made on Tuesday, Trump indicated that the tariff could increase significantly if India continues its dealings with Russia. “If they’re buying Russian oil, they’re fueling the war machine. I’m not going to be happy,” he declared. This move has raised concerns about its potential impact on the global economy, particularly regarding oil prices and Russia’s economic stability.
According to research by Oxford Economics, Russia’s economy could be pushed into a recession if secondary tariffs of 100 per cent are implemented on its trading partners. The consultancy’s analysts noted that the Central Bank of Russia (CBR) faces significant challenges in mitigating the economic fallout, as there is limited room for interest rate cuts that could stimulate growth.
The Russian economy is already showing signs of strain, having contracted by 0.6 per cent in the first quarter of 2024, according to Tatiana Orlova, an emerging markets economist at Oxford Economics. The possibility of further tariffs could lead to a substantial reduction in Russian oil exports, weakening the Russian ruble and leaving the CBR vulnerable. Orlova warned that the CBR would have less capacity to stabilize the foreign exchange market through rate hikes.
As tension mounts, Trump’s envoy, Steve Witkoff, met with Vladimir Putin on Wednesday at the Kremlin. This meeting comes ahead of a critical deadline for Russia to agree to a ceasefire with Ukraine. Trump has indicated that the U.S. will impose additional tariffs if Russia continues its military actions. Ukrainian President Volodymyr Zelenskyy has stated that peace negotiations will only occur if Russia depletes its military funding.
The economic repercussions of Trump’s tariffs could be significant. Forecasters suggest that oil prices might surge to as high as $100 per barrel, up from around $67 currently. A report from Capital Economics predicts that secondary tariffs would result in higher global energy prices, affecting markets beyond just oil. Senior economist Kieran Tompkins noted that the potential for additional liquefied natural gas supply may arrive too late to alleviate rising costs.
European economies, particularly the UK, could face severe challenges due to their dependence on natural gas, which constituted over a quarter of total energy consumption in the year to April 2023. As Oxford Economics suggests, pressure on countries like China and India may lead them to seek U.S. energy exports, similar to agreements previously made by the EU.
In light of these developments, the geopolitical landscape may shift, with Trump’s tariffs potentially compelling major economies to play a more active role in the Russia-Ukraine conflict. Should Russia agree to a ceasefire, there may be opportunities to negotiate the lifting of some U.S. sanctions.
In recent weeks, Trump has strengthened ties with Zelenskyy, committing to send $200 million in military equipment to Ukraine. This military support follows remarks from former Russian President Dmitry Medvedev, who criticized Trump for “playing the ultimatum game.” The Kremlin has downplayed the significance of Trump’s military actions, indicating that the situation remains fluid.
As the situation evolves, the implications of the trade war and the potential for further economic sanctions will continue to shape the global oil market and the broader geopolitical landscape. The stakes are high, and the impact of these tariffs may resonate far beyond the immediate participants in this escalating conflict.
