U.S. President Donald Trump declared large-scale tariff impositions against 180 countries worldwide, including allied nations, but Russia was the only major country to avoid this. This led to interpretations that Russia benefitted, but in reality, foreign media reported that due to the 'Trump risk', the falling oil prices have inflicted economic damage comparable to that of the countries subject to tariffs.
According to the New York Times (NYT) on the 10th (local time), the price of crude oil plummeted about 15% since Trump announced the tariff on April 2. This is attributed to the rapidly expanding concerns over a global economic recession, which caused a decline in oil demand forecasts. Although Trump announced a 90-day suspension of the tariffs, the global economic outlook is already in a damaged state.
◇ Living off oil exports… Oil price drop is an 'emergency'
Crude oil is akin to the lifeblood of the Russian economy and the war. Should the Trump-induced decline in oil prices continue, Russia will have no choice but to tighten its belt soon, and the repercussions may also affect military budgets, analyzed the NYT. Experts noted, "This tariff measure could weaken Russia's war-fighting capabilities long-term more than Western sanctions."
Reports indicate that about one-third of Russia's federal budget comes from oil exports. This year, Russia has allocated about $136 billion (approximately 197 trillion won) for defense and security sectors, nearly three times the amount from 10 years ago. Given this situation, should the falling oil prices reduce export revenues leading to intensified financial pressure, cuts will be inevitable.
Elvira Nabiullina, the Governor of the Central Bank of Russia, had warned that "The main impact of President Trump's policies on Russia is the drop in oil prices." Kremlin spokesperson Dmitry Peskov also expressed indirect concerns, saying, "The international market is currently extremely unstable and emotionally overheated."
The strengthening of the Russian ruble has also been a factor in reducing oil export revenues. As President Trump showed moves to mediate a ceasefire in Ukraine, the ruble strengthened. However, since most transactions in the international oil market are conducted in dollars, an increase in the value of the national currency does not help profitability.
The trade war between the U.S. and China is also working against Russia. Russia has been exporting low-priced oil to China and India to evade Western sanctions, but if demand from China slows due to the trade war, it may face a blow to long-term profitability. The Trump administration's policies encouraging U.S. energy self-sufficiency and the increase of U.S. crude oil imports are also factors threatening Russia's position in the global energy market.
◇ Deteriorating financial situation… “Damage exceeding that of tariff target countries”
Since the beginning of this year, Russia's budget deficit has expanded to about 1.3% of GDP due to rising war expenses. By the end of February, about 20% of this year's budget had already been executed, with defense and security expenditures accounting for over 40% of the total budget, increasing financial pressure.
The Russian government, which has been blocked from accessing international financial markets, is relying on its sovereign wealth funds, but these have also rapidly decreased in amount following the war. High interest rates are also a burden. Currently, the Russian benchmark interest rate has reached 21% to suppress inflation. In this case, issuing government bonds through domestic financial institutions incurs significant costs.
In the long run, the trade war may promote momentum to shift away from a U.S.-centric order and contribute to Russia's 'de-dollarization and de-Westernization of the economic structure.' Vladimir Putin, the President of Russia, has consistently pushed for such alternatives through collaboration with emerging economies like the BRICS.
However, the NYT stated, "Such structural change will take years. Russia is currently facing the realistic threat of declining oil prices." Experts analyzed to the NYT that "While the restructuring of global supply chains may offer potential opportunities for Russia, in the short term it may suffer economic damage greater than that of the countries targeted by tariffs."