Trump's trade tactics strain Russia amid global chaos
Russia did not expect this. While imposing new tariffs on almost the entire world, the United States spared Russia. Unexpectedly, however, Trump's grip is also squeezing Russia's economy. According to experts, Moscow was not the initial target, but that could quickly change.
Shaken by Donald Trump's trade war, the global economy is inflicting a harsh and unintended penalty on Moscow, as Russian newspapers assess. The Republican president's policy was initially seen as an opportunity for Russia because President Putin hoped to relax sanctions. Recently, it became clear that Russia even avoided additional tariff burdens.
The grinding wheels in motion squeeze the economy
However, Moscow still feels the effects of the chaos in the markets that emerged after the tariffs were announced and then halted for 90 days (except for China). The sharp decline in oil prices and the ruble's value directly impact Russia's budget. The head of Russia's Central Bank warned as early as Tuesday that falling global oil prices could seriously strain the country's public finances. - Trade wars usually lead to a decline in global trade and possibly a decrease in demand for our energy resources, reluctantly admitted Elvira Nabiullina, quoted by The Moscow Times.
Even though Donald Trump suspended tariffs for 90 days on most countries on Wednesday evening, he strengthened tariffs on China. As a result, the crude oil price only reacted with slight increases to just over CAD 85 per barrel of Brent oil.
Russia was, however, a byproduct of Trump's actions, not a target or direction. These actions seem primarily aimed at China - evaluates Tymon Pastucha, an analyst at the Polish Institute of International Affairs.
Although unintended, the effect is profound. The Russian agency TASS reported that on Wednesday, the price of Urals oil, Russia's key export blend, dropped slightly below CAD 68 per barrel. This is significantly below what the Kremlin needs to balance the budget.
- The Russian economy is under increasing pressure. According to the latest budget data for the first three months of this year, oil and gas revenue fell by 9.8% quarter-on-quarter compared to last year. If comparing data from March this year to March 2024, the Russian budget receives 18% less revenue from oil and gas. This affects Russia's condition, where the oil and gas sector still plays a vital role. Today, tax revenues from oil and gas account for about 30% of the budget. Russian military expenditures also account for about 30% of the budget, according to the PISM analyst.
Russia did not expect this
The Russian central bank predicted that there would be price drops in the medium term, but they were not expected to be this deep, emphasizes Pastucha. As he points out, according to the budget assumptions for 2025, the average barrel price was supposed to be CAD 94. Meanwhile, in March, oil was already CAD 15 below that level, and today, CAD 27.
The Russian Urals have been priced at around CAD 68 in recent days. This is very bad news for Russia. If the trend continues, and everything indicates it will, the budget situation will deteriorate. Russian oil imports will decline. Especially the situation in China, which is the largest importer, could cause reduced purchases of Russian raw materials. India is also looking for suppliers other than Russia under US pressure - assesses the PISM analyst.
This has led to a sharp decline in the value of Russian stocks and puts pressure on the ruble. The Moscow Times writes, "The Russian economy is starting to fall apart." The Moscow stock exchange opened in the red on Monday. It recorded a decline of another 2%, marking the second week of losses in a row. It was the longest series of declines since Russia's default in 1998. However, since Wednesday, the stock exchange has been rising, but it is still far from the level, even from March this year.
- The effects can be seen not only macroeconomically. Russian companies, including Gazprom, suffer, and oil and coal companies even more. The first serious effects of sanctions, including the latest ones imposed on January 10 by the US administration, are visible. The market impact resulting from Donald Trump's recent decisions adds to the effect of the sanction policy, emphasizing Tymon Pastucha.
Putin's hopes are sinking
The last few weeks have given Vladimir Putin every argument that the strong cards are on his side, from the change in Washington's view of Ukraine through Trump's confrontational and critical policy towards Europe and partners to suggestions from the White House about the possibility of easing sanctions and making far-reaching concessions.
At the same time, Russia has not stopped or even limited its military operations. As Vladimir Ponomariov, a Russian oppositionist and expert at the Institute of Security and International Development, explains, Russia currently has the upper hand on the front. Hence, it does not need a ceasefire, as it would halt its offensive's momentum. Besides, Putin is not a strong supporter of any truces. He needs Ukraine to capitulate, he points out.
However, impatience is growing in Washington with the lack of progress in negotiations with Russia. At the beginning of this week, US President Donald Trump toughened his rhetoric towards Russia. On Monday, he told reporters that he does not like that the Russians "are bombing like crazy" in Ukraine.
Is Putin deceiving Trump? I'm not sure. I wouldn't underestimate Trump, he's an experienced politician. It's not about Putin pulling the wool over his eyes. The ceasefire issue is difficult - says Prof. Ponomariov.
On the other hand, as the Russian oppositionist says, the end of the war will expose numerous economic problems for Russia. - What should we do with the boosted military industry and the army? From a financial standpoint, increasing military production is not beneficial and, in the long run, diminishes the country's economic power. It will not be easy to convert this production to export. Unused equipment is challenging to sell, emphasizes our interlocutor.
A blow may still come
As Tymon Pastucha argues, Donald Trump and his entourage "must experience what Russia is." Increasingly, it looks like Trump may soon lose patience and carry out his threats, he assesses.
Glen Howard, president of the Saratoga Foundation think tank, believes that "hawks"—advisors critical of Russia—are gaining influence in the White House (National Security Advisor Michael Waltz, Secretary of State Marco Rubio, Secretary of Defense Pete Hegseth, and Special U.S. Envoy on Ukraine and Russia Keith Kellogg). Black clouds are gathering over Russia. Trump has already threatened Russia with new economic sanctions.
There is information that Trump is frustrated with Russia's unwillingness to stop fighting in Ukraine. Various bills are being prepared in the US to increase the sanction pressure on Russia, mainly on oil and gas, by introducing tariffs for trading partners who, despite sanctions, buy oil from Russia, notes Vladimir Ponomariov.
According to experts, Russia's "shadow fleet" in the Baltic will be in the American crosshairs. By disrupting the continuity of Russian raw materials exports and imposing strict economic sanctions, the US could further worsen Russia's situation, pushing it into the abyss of recession.
We can expect Trump to take the next step and deliver a bigger blow to Russia if there is no progress in peace talks. He has previously suggested he will impose high tariffs on importers of Russian oil. The question is how much this will be a tactical change and how much a strategic move - emphasizes Tymon Pastucha.
According to a PISM analyst, the American extraction industry is interested in organically cutting Russian gas and oil exports. Reducing the Russian raw materials' supply will increase oil prices, ultimately benefiting American extraction companies.
The volatile oil market also hits other producers, even those Trump considers close allies. According to Goldman Sachs analysts, the drop in oil prices could have severe consequences for Saudi Arabia's finances and ambitious economic plans. According to their calculations, the kingdom’s budget deficit will likely rise to CAD 90 billion this year.
