Trump's secondary tariff threats on oil trade could disrupt the global oil market and throw a wrench in the efficacy of future US sanctions, according to a BMI report published last week. The administration’s possible expansion of the sanctioning tool — secondary tariffs — is set to disrupt the markets in the short term, while accelerating efforts on the longer term to decouple from the US-dominated financial system, especially in the oil market, the report said.

SOUNDS SMART- Secondary sanctions are a type of punitive foreign policy tool that the US deploy to deter third party firms (non-US) and other countries from doing business with a designated entity. The tool entails threats against firms and countries which are found in violation of the sanctions from the international financial system, effectively raising pressure on their primary target.

The threats: US President Donald Trump is threatening a 25% supplemental tariff on goods imported into the US from any country purchasing Venezuelan oil on or after 2 April. Subsequent threats have targeted Russia and Iran, including a 500% secondary tariff on Russian oil and gas proposed by a bipartisan group of US senators.

A shake up of oil markets: Fitch predicts oil prices could hit USD 110-130 / bbl if the US goes ahead with its secondary sanctions threats. This risk is especially acute in the case of Russia given it holds both a large share of global oil production and a diversified range of buyers.

Would Opec+ come for rescue? While OPEC+ has spare capacity to largely offset this potential loss, bringing it online would take months and incur significant costs, and the volatile geopolitical situation and uncertainties on US policies may also act as a deterrent for such a move, according to BMI.

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