Trump threatens large-scale sanctions on Russia until final Ukraine peace deal reached

US President Donald Trump March 7 threatened to put "large-scale" sanctions and tariffs on Russia until a ceasefire and peace deal with Ukraine is reached.

"Based on the fact that Russia is absolutely ‘pounding' Ukraine on the battlefield right now, I am strongly considering large scale banking sanctions, sanctions, and tariffs on Russia until a cease fire and FINAL SETTLEMENT AGREEMENT ON PEACE IS REACHED," Trump said in a post on Truth Social, his social media platform. "To Russia and Ukraine, get to the table right now, before it is too late. Thank you!!!"

Crude oil futures rebounded amid the new threat. The NYMEX front-month crude settled up 68 cents at $67.04/b, while ICE front-month Brent gained 90 cents to settle at $70.36/b.

Russia is already one of the world's most heavily sanctioned countries and faces severe restrictions to its commodity trade from the US, EU, UK, G7 and other global counterparts.

A G7 price cap introduced in December 2022 prohibited Russian companies from selling crude oil for more than $60/b, while US and EU sanctions have forced it to find new buyers for its oil in locations such as India and China. Russia has also developed a shadow fleet of tankers to evade sanctions.

Over the past year, Russia's main export grade, Urals, has largely traded near or above the price cap threshold, although it has been below the threshold since Feb. 21. Platts, part of S&P Global Energy, assessed Urals FOB Primorsk at $56.74/b on March 7.

Sanctions possibilities

Analysts say the sanctions threat could play out in a number of different ways, with a range of possible impacts on oil markets.

"The likeliest impact of the sanctions threat is that the administration will allow the revocation of General License 8 to come into effect on March 12," said David Goldwyn, president of Goldwyn Global Strategies and chair of the Atlantic Council Global Energy Center's Energy Advisory Group. "These are financial sanctions in the sense that energy-related transactions with sanctioned Russian financial institutions will be prohibited," he said.

But the market as already priced in the revocation of this license on March 12, Goldwyn said. As a result, he added, "The primary market impact is that the potential for relaxation of sanctions, either on Arctic LNG or on the price cap, is now quite unlikely."

In the waning days of the Biden administration, Treasury's Office of Foreign Assets Control on Jan. 10 issued GL 8L to wind down energy-related transactions involving certain sanctioned Russian financial institutions by March 12.

Trump's new threat could lead to several possible sanctions scenarios, Rachel Ziemba, a senior advisor at Horizon Engage, said. One scenario would involve no new sanctions and maintenance of previous sanctions, which would allow Russia's oil export volumes to gradually creep up from the lows of January as the shadow fleet revives.

A second scenario would involve tougher sanctions, likely in the form of ending the oil price cap, which would reduce the legal channels for Russian energy trade, Ziemba said. It could also include sanctions on more oil tankers, she said. This would take some barrels offline, decrease Russian revenues and tighten global oil markets, she said.

The third scenario would be Trump talking tough but also providing sanctions relief, Ziemba said. This approach would have more global impacts on gas than oil -- because not much oil has come offline -- but it would increase Russian revenues.

"In all these scenarios the EU seaborne crude ban remains in effect, moderating the impact of the US sanctions posture changes," Ziemba said.

Shift in tone

Trump's latest threat echoed a similar post on Jan. 22, when Trump said he would put high levels of sanctions, taxes and tariffs on anything being sold by Russia to the US if Russian President Vladimir Putin failed to negotiate a peace deal with Ukraine. However, in the January post, Trump also said, "I love the Russian people, and always had a very good relationship with President Putin."

Since then, Trump's relations with Putin have only seemed to warm, with a call between the two leaders and Saudi-mediated talks between the US and Russia in Riyadh.

At the same time, Trump's relations with Ukrainian President Volodymyr Zelensky soured. After a contentious meeting in the White House, Trump paused US assistance to Ukraine.

Trump's latest post threatening Russia with sanctions, however, may signal a shift in tone. It is more specific, citing banking sanctions and the expectation of a final settlement.

The shift in Trump's tone is significant in that it reflects greater urgency and desire on Trump's part to reach a settlement, said Ellen Wald, president of Transversal Consulting. "His tactics seem to involve being tough on both sides," she said.

Ziemba argued that the tariff threat is designed to send the message that the US is not going to offer sanctions relief just to get Russia to the table, which some market actors had begun to assume. The tone is also an effort to set up a tougher stance ahead of negotiations that are set to take place next week, she said.

"I think this is an example of Trump's approach, talk tough, set out a maximalist threat, see what the response is, tack back somewhat towards center, and then repeat," Ziemba said.