Why the oil market believes Trump will back down from tariffs on Russian crude buyers

Yoruk Isik | ReutersThe oil market is shrugging off President Donald Trump's threats to impose heavy tariffs on countries that buy Russian energy exports.Trump has given Russia until Friday to agree to a ceasefire in Ukraine

If Moscow does not comply, the U.S. will impose 100% "secondary tariffs" on countries that buy Russian exports, the president has said

This would in theory force countries to choose between buying Russian oil or trading with the U.S.India, China and Turkey are the most exposed as the three biggest importers of Russian oil

Oil prices closed 1% lower as traders seem to believe the president is bluffing and the tariff won't really go into effect."Given the price response to the news, it would appear that current threats are considered a negotiation tactic by Trump and little more," Matt Smith, an oil analyst at Kpler, told CNBC.India is Russia's biggest oil customer, importing 1.7 million barrels per day, according to Kpler data

If Trump s through on the tariff, oil prices would jump because barrels that Russia exports to India cannot be easily rerouted to other destinations, Smith said

Moscow would have to shut in some duction, which would take supply out of the global market, he said.But the market senses right now that Trump is going to back down, said Bob McNally, president of Rapidan Energy

The additional tariff against India does not go into effect for 21 days, viding time for the countries to reach an agreement."Traders believe that there will be a deal, that it really won't go into effect," McNally said of the tariff. "And if it did, India would bably just pay the tariffs and keep importing Russian oil," he said of traders' thinking.watch now5:0805:08India hasn’t been a good trading partner, will raise tariffs over Russian oil: President TrumpSquawk BoxThe Trump administration has not always backed up its words with actions when it comes to energy sanctions, said Helima Croft, head of global commodity strategy at RBC Capital , in a note to clients

Iran's oil exports, for example, remain elevated despite declarations from the White House that it is imposing a maximum pressure campaign, Croft said."Our base case is that Russia will resist making serious concessions, believing that President Trump will blink at imposing measures that could push energy prices materially higher and that the White House's newfound support for Ukraine will dissipate," Croft told clients in the July 30 note.Steep tariffs on Russian oil buyers would jeopardize Trump's push to reduce energy prices

The president said last month that he wants U.S. crude prices to fall below $64 per barrel

In an interview with CNBC Tuesday, the president said low oil prices would force Russia to end its war in Ukraine."If you sanction hard enough that Russia can't sell its oil, prices at the pump will soar — that's just the barrel math," McNally said.Trump seemed to acknowledge Wednesday that there would not be ceasefire by his deadline

He said his special envoy Steve Witkoff "had a highly ductive meeting with Russian President Vladimir Putin.""Everyone agrees this War must come to a close, and we will work towards that in the days and weeks to come," Trump said in a post on Truth Social.Trump and Putin have agreed in principle to meet in the coming days, according to the Kremlin

If Putin refuses to make concessions, Trump will ly continue down the road of energy sanctions, McNally said

This includes targeting big importers of Russian oil, namely China."He will have to go gingerly because of the blowback risk in terms of higher oil prices," McNally said. "He has to do so in a way that isn't counterductive and that's a tricky blem to solve."Catch up on the energy news from CNBC :Best Stocks: 2025 will be known as the year when boring utilities joined the growth teamGE Vernova poised for more upside after s blow past Wall Street targets, analysts sayThe breakout in this utilities ETF has room to run, says Carter WorthTrack all the coverage of oil prices and the oil and gas industry at CNBC.com.