Oil Spillover

In a March 30 interview with NBC News, US President Donald Trump threatened to impose “secondary tariffs” of up to 50% on goods from countries that import Russian oil. The measure could be enacted in less than a month, he claimed, if he felt that Moscow was deliberately slowing progress toward ending the war in Ukraine. It was the president’s second such move in a short period of time. Less than a week earlier, he issued an executive order threatening a tariff of 25% on all goods imported into the United States from any country that buys Venezuelan oil after April 2.

The announcements were the first time Washington has threatened tariffs, as opposed to sanctions, on countries that engage in transactions it considers contrary to US foreign policy. The strategy represents a significant innovation in terms of legal authority and an escalation in the burgeoning global trade war.

Secondary tariffs are called that because they are supposedly analogous to secondary sanctions, which the United States uses to bar companies or entities outside its borders from doing business with countries it sanctions directly. Secondary sanctions related to Russian and Iranian oil exports, for example, allow Washington to blacklist persons or firms engaged in that trade, thereby cutting them off from US financial markets and exposing them to hefty fines. Critics emphasize that these instruments of US extraterritoriality work because non-American companies do not want to be shut out of the US financial system or the ability conduct US dollar transactions.

Secondary sanctions are narrowly targeted, though they can be applied broadly. They can hit foreign persons or companies with no direct link to the United States. Secondary tariffs, however, work differently: They broadly target a country’s exports based on decisions made by individual firms operating within its borders. The logic appears to be that access to US consumer markets is as essential as access to its financial system. For the Trump administration, such tariffs are an expansion of its “energy dominance” agenda, whose aim was initially to increase domestic energy production and exports of US natural gas. But that agenda has now become an overt effort to turn global oil and gas markets into instruments of US foreign and trade policy. 

This shift has important, immediate, and, potentially, broader consequences: 

• Even the threat of secondary tariffs on fossil fuel-importing countries injects fresh volatility into energy markets. Global oil prices rose sharply after the March 30 announcement, though they fell shortly thereafter, signalling doubt in the market about Trump’s actually implementing his threats. But prices could swing again if the tariffs are enacted. Venezuela is a significant player, but Russia accounts for over 9% of the world’s crude oil exports, the most after Saudi Arabia and the United States. Effectively taking so much oil off the market would cause major disruption.

• Secondary tariffs on Russian oil would hit India and China particularly hard. These countries are both the largest buyers of Russian crude and significant goods exporters to the United States. Russian oil constituted 35% of India’s crude imports and 19% of China’s in 2024. In addition, since secondary tariffs appear to cumulative, they would come on top of tariffs imposed on April 2.

• Secondary tariffs could increase the speed and depth with which the Trump administration targets countries for policy decisions it does not like. In this case, countries in the crosshairs would have little time to head off the tariffs by addressing their cause since that would involve government investigation and oversight of private transactions.

• Europe has largely weaned itself off Russian oil since the Ukraine war, but the threat of secondary tariffs combined with dependence on American liquefied natural gas imports exposes the continent to further US weaponization of the global fossil fuel trade. Europe must urgently diversify its energy mix to insulate itself from geopolitical supply shocks. Secondary tariffs boost a business case for a “security premium” that drives deeper investment in renewables, nuclear power, and energy efficiency measures.

• Secondary tariffs are likely to accelerate a worldwide debate on less dependence on the US market and the dollar for financial transactions. The use of alternative currencies or the pursuit of other strategies to weaken the dollar may gain traction as a way to limit vulnerability to US economic coercion.

The combined effects of these measures with others announced on April 2 and, perhaps, more to come will be complex. But the Trump administration’s weaponization of the global fossil fuel trade is likely to set off a price surge that would be in direct conflict with its policy of keeping oil prices low for American consumers. Growing insecurity in global energy markets draws parallels with the oil crisis of the 1970s, which led to transformative policies and the emergence of modern energy efficiency measures, renewables, and nuclear power. A similar energy security crisis now could do more to accelerate the ongoing energy transition—and reduce countries’ exposure to the United States—than the climate-led push of the past decade.