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Trump Warns of Tariffs in Russia-Saudi Arabia Oil Price Standoff

Posted on Apr. 7, 2020

President Trump warned that he may impose tariffs on imports from feuding Russia and Saudi Arabia if they continue to resist curbing oil production while prices plummet in the wake of the coronavirus pandemic.

OPEC countries and a few others, including Russia, have been trying to reach agreement on production cutbacks and end a damaging price war between Russia and Saudi Arabia, which have flooded the market with cheap oil just as the global health crisis has caused a plunge in demand. Saudi Arabia, OPEC's biggest producer, has been in the forefront in limiting supplies since as far back as 2017 but is now calling for other countries to follow suit. The "OPEC plus" countries were scheduled to meet via video conference April 6, but the meeting was postponed at the last minute. It is now expected to take place April 9.

Trump says that if Russia and Saudi Arabia don't reach an agreement to curtail production soon, he will take action. "Yeah, I would do tariffs — very substantial tariffs — because [the United States is] independent now," he said in a video recording on the day of a coronavirus task force briefing at the White House April 4. "We have our own oil, and if I did the tariffs, we essentially would be saying, 'We don't want foreign oil.'”

While citizens and fuel-intensive sectors like the airline industry are enjoying lower prices at the pump, saving the U.S. oil and gas industry and the thousands of jobs it creates is a priority, Trump said.

However, Trump said he will impose tariffs only if there is no progress in negotiations to end the price war and substantially reduce petroleum imports — possibly by 10 million barrels or more, according to a Saudi spokesman. At an April 3 briefing, Trump said that based on conversations with leaders from both Russia and Saudi Arabia, he is optimistic that an agreement will be reached. Without consensus, both economies would be destroyed, he added.

Pete Mento of Crowe LLP told Tax Notes that tariffs would balance the scales between imported and domestic oil production and could be the push that gets an agreement over the finish line“Anytime that you have [the] United States talking about imposing a tariff on the import of anything, it tends to get people's attention and it tends to push them toward an agreement, and . . . that's noticeable now in that we're being told that people are very close to an agreement. You know, this could be something that helps to edge them or push them toward coming to an agreement,” Mento said.

Although the issue has been receiving extra media attention recently, Linda Weinberg, a partner at Barnes & Thornburg, said the dispute predates the coronavirus pandemic. She explained that negotiations between Russia and Saudi Arabia started about a year ago, with Saudi Arabia urging other countries to lower production, but Russia, which is very dependent on oil for economic stability, opposing a cutback.

The situation is “getting more attention and probably getting more intense because the demand is down, with nobody going into work and factories being at a standstill. There's just not as much use for the petroleum,” Weinburg said. 

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