Oil drops 2% as traders weigh tariff risks and Russian supply

Oil gave back ground after a four-session climb, with Brent settling near 67 dollars and WTI near 63. The downdraft tracked a fresh round of tariff anxiety from Washington and a more permissive Russian export outlook that offset earlier supply-risk headlines. Brent fell about 2.3 percent and WTI roughly 2.4 percent, erasing Monday’s gains.

This is not a classic macro scare. It is a product-model clash in energy markets. On one side is tariff risk that crimps 2025 demand growth and tightens corporate spending plans. On the other is Russia’s ability to redirect barrels and smooth near-term tightness whenever refinery outages or quota accounting free up crude for export. That combination weakens the bull case without requiring a recession.

The tariff story is no longer abstract. The administration’s move to double U.S. levies on Indian goods to 50 percent — framed around Delhi’s intake of discounted Russian crude — puts real weight on global trade flows and on refined product economics across Asia. Negotiators signalled no last-minute deal before the increase, which kept energy traders on headline watch. A broader tariff regime has already pushed analysts to cut this year’s oil demand growth outlook as trade frictions filter through freight, manufacturing, and consumer sentiment.

On the supply side, Russia continues to show it can flex short-cycle exports despite wartime disruptions. Market briefings pointed to a 200,000 barrels a day lift from western ports for August compared with initial schedules, helped by refinery outages that left more crude available for shipment. This is the kind of operational agility that keeps prompt prices contained even when geopolitical rhetoric heats up. The near-term frame is reinforced by OPEC+ optics. The group has been nudging output higher in recent months to reclaim market share while stressing compliance, a stance that undermines the idea of an imminent structural squeeze.

Zoom out and the system’s math still tilts bearish. The IEA’s August report shows supply growth comfortably outpacing demand this year and next, with higher OPEC+ targets aiding the increase. Tariffs and trade frictions are a key part of the demand downgrade narrative. Even before the latest escalation, global 2025 demand growth had been clipped to its slowest pace in five years.

Why does this matter if you are a builder or operator in energy, logistics, or heavy industry? Because volatility is being driven by policy cadence, not underlying scarcity. That changes how you plan. If you priced projects for a 75 to 85 dollar Brent spine in the second half, the current mix argues for a lower midpoint and a wider error band. The export elasticity from Russia, plus incremental OPEC+ barrels, keeps ceilings honest. The tariff channel trims the floor by weakening throughput and cargo rotations in Asia. Monday’s rally on sanctions chatter was real. Tuesday’s give-back shows how quickly the model corrects when barrels actually move and when trade barriers lean against growth.

There is also a second-order risk many desks underweight. If Washington applies India-style penalties more broadly — or bolts on a Russian oil surcharge while offering waivers — the intent may be to cut Moscow’s revenue without removing barrels. Execution clarity will decide whether that is a price-cap refresh or an accidental supply shock. For now, the market is discounting compliance slippage and rerouting capacity to keep volumes afloat.

For product and platform teams inside energy traders, shippers, and industrial buyers, the takeaway is operational. Hedge programs need faster policy triggers. Procurement needs wider bid-ask tolerances on delivered pricing and more flexible indexation to absorb tariff-induced swings in freight and feedstock. GTM teams selling into manufacturing should assume softer run-rates across tariff-exposed lanes and build compensation around mix, not just volume.

Oil falls 2% as investors weigh tariffs, Russian supply. That headline captures the tape. The deeper signal is that policy is acting like a feature toggle in the market’s operating system. As long as Russian exports can rise when refinery outages free crude and OPEC+ leans into incremental supply, every tariff headline will meet a physical counterbalance. Upside exists, but it needs a cleaner supply disruption or a tariff path that removes barrels instead of just rerouting them.

Miles’s take: Crude is trading the policy funnel, not the scarcity story. Until tariffs force real volume off the water, expect range-bound prices with spikes that fade as fast as they form.