Trump spares Russia from tariffs, but oil price plunge could wreck war economy regardless

Yahoo

09-04-2025

U.S. President Donald Trump has inadvertently hit Russia's economy after his "Liberation Day" tariffs caused oil prices to drop drastically on April 7, with potentially massive ramifications for the Kremlin's ability to fund its ongoing war in Ukraine.
Russia has so far failed to agree to a full ceasefire, and while Trump has been vocal about being "pissed off" and "very angry" with the Kremlin, he is yet to take any concrete action to force Russia to end its full-scale invasion.
He has multiple forms of leverage he could use against the Kremlin — increasing military aid to Ukraine, strengthening the enforcement of existing sanctions, or imposing additional tariffs on countries that buy Russian oil.
So far, he has not used any of it, but his "Liberation Day" tariffs imposed on nearly every country in the world — but notably not Russia — may end up forcing Russian President Vladimir Putin to reconsider his options — and the Kremlin is already panicking.
Russia's economy is heavily dependent on oil revenues, which make up around 30% of its total state budget.
As the war in Ukraine has dragged on, the Kremlin has massively increased defense spending, and 32% of the 2025 budget expenditure was allocated to the military and its war machine in Ukraine.
But there's an issue — when drawing up the 2025 budget, the Kremlin budgeted for an oil price of $70 per barrel. But on April 7, the price of Russian Urals oil tumbled to a 21-month low of $51.54 per barrel on the Baltic port of Primorsk, according to Argus Media. "If the average price is lower (than $70 per barrel) throughout the year, Russia will have less money to earn and spend, especially to cover growing expenses connected to illegal actions against Ukraine," Wojciech Jakobik, a Warsaw-based energy analyst, told the Kyiv Independent."Russia's National Wealth Fund would be depleted faster, and Russia would need a truce quicker," he added.
Ukraine has long been targeting Russian oil assets with drones in an attempt to deplete the Kremlin's oil revenue, but Trump has done a more effective job in recent days by dragging the world into economic uncertainty. Trump's 34% tariffs on China caused Beijing to retaliate with its own 34% tariffs on American goods. The White House responded on April 7 by saying it would add an additional 50% tariff to Chinese goods on top of last week's 34% tariff and the previous 20% tariff, bringing the total to over 100%. The EU, which was slapped with 20% tariffs on its goods, has also threatened retaliation.
Trump's actions sparked concerns of a global recession, leading global oil prices to plunge in anticipation of a slowdown in economic activity.
So while Russia was spared the imposition of tariffs, it's now suffering heavily due to the global ramifications of the unfolding global trade war.
The price drop ignited panic in Moscow, and the Kremlin is monitoring the "extremely turbulent, tense" situation, Kremlin spokesperson Dmitry Peskov told Interfax on April 7.
"Our economic authorities are monitoring this situation very closely and, of course, are doing and will do everything necessary to minimize the consequences of this international economic storm for our economy," he added.
Peskov laid the blame squarely on Trump's tariffs but there are other factors contributing to the drop in oil revenue for Russia.
Russian fossil fuel revenues were declining even before the tariffs, partly due to American and British sanctions in January which caused "shadow fleet" shipments to drop by 21% in February, the Center for Research on Energy and Clear Air (CREA) reported. The sanctions have also lowered demand for Russian crude in China and India — Moscow's main markets. On top of this, Trump's tariffs are likely to hurt China's economy in particular and consequently, its oil demand. "Since the start of the war with Ukraine, Russia has become significantly dependent on China. Therefore, it's more vulnerable to the health of the Chinese economy," Lilit Gevorgyan, associate director of economics at S&P Global Market Intelligence, told the Kyiv Independent.
Additionally, the OPEC+ oil cartel, of which Russia is a member, has recently unwound restrictions on oil production faster than expected, John Gawthrop, editor at Argus Eurasia Energy, told the Kyiv Independent.
Trump previously said Russia's war could end "immediately" if OPEC+ lowered oil prices. The cartel, consisting of 12 countries, accounts for 40% of the global oil production and 60% of global oil trade.OPEC+ pledged to increase oil production by 411,000 barrels per day instead of the expected 140,000 per day, starting next month. This will push down prices as there is more oil on the market. "There's massive uncertainty about what's going on in the global economy and you've also got more oil coming out into the market. It creates the perfect storm," Gawthrop said.
Banks have cut forecasts for Brent crude, the global benchmark, to as low as $60 per barrel. As recently as late March, Brent prices reached $72.52 a barrel.
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It doesn't look good for Russia — reduced income from energy would add additional pressure to its already strained economy. Moscow is balancing funding living standards, a war, and macroeconomic stability.
Sanctions alone haven't yet toppled its economy largely due to the Russian energy sector raking in cash.
Russia's state budget earned around $100 billion from crude exports alone in 2024, according to S&P Global Market Intelligence."If you take out a big chunk of revenue that had been expected, it becomes harder to maintain that already precarious balance. Something may have to give," Gawthrop said. Russia could cut social spending and investment activities to fund its war machine, but continued prices below $70 per barrel could affect its ability to do so in the longer term, Jakobik said.
And if oil prices fall even further, it could force Moscow into seeking a truce with Ukraine quicker, he added.
Banks don't expect Brent prices to come back this year or next. Goldman Sachs forecast Brent prices would be $62 per barrel by December 2025 and $55 by December 2026, Reuters reported. With OPEC+ increasing oil production, it could push down prices even more. If the cartel goes further into a "price war," it runs the risk of dragging global oil prices below $60 per barrel, which will bring Russian oil down too, Jakobik said. In 2020, during the COVID-19 pandemic, Riyadh faced off with Moscow, drastically increasing oil production and causing prices to drop below sustainable levels for producers. The Russian ruble fell 7% against the dollar as a result. Another face-off between Moscow and Riyadh is unlikely as Russia is complying more with OPEC+ regulation, Gawthrop said.
But Kazakhstan has ramped up production recently, which could cause prices to fall to a painful level for Russia. "If oil prices fall to a level that is deemed to be too uncomfortable, OPEC+ will probably rein in production again. Although when we talk about uncomfortable price levels, the Saudis can take much more pain in terms of low oil prices than Russia can," Gawthrop said.Trump is dragging the world into another unprecedented economic catastrophe that could mirror the 2008 financial crash or pandemic, Gawthrop added.
Unless the U.S. reverses its tariff policy, he doesn't expect the market to rebound anytime soon.
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