What Trump should say to Putin in Alaska

The US can use sanctions to shut down Russia's shadow fleet of oil tankers overnight

There’s been a lot to scratch your head about since inauguration day. There’s the fact that the Dollar has fallen even though any economic model would say it should rise in the face of tariffs. There’s the Federal Reserve that may cut interest rates even though inflation is starting to run hot, the result of endless badgering by the administration.

But all this stuff pales relative to the real head-scratcher: why is Trump being so soft on Putin? For markets, there really is no bigger question. After all, if Trump is willing to break bread with Putin, what prevents him from doing the same with China’s Xi? What’s at stake is a major geopolitical realignment where allies are no longer allies and foes are no longer foes.

The administration’s recent actions have confused this issue further. It announced secondary tariffs on India, which imports lots of Russian oil. However, at the end of the day, the real target of secondary tariffs is Russia (by driving demand away from Russian oil), so why not hit Russia directly? Moreover, if secondary tariffs were imposed on India, why weren’t they also put on China, which is a bigger importer of Russian oil? None of this make a lot of sense and raises lots of questions.

So what should President Trump say in Alaska if he’s serious about confronting Putin over Ukraine? It’s simple. As the Venn diagram shows, there’s currently 359 shadow fleet oil tankers sanctioned by the EU and/or the UK that are not sanctioned by the US. If US sanctions were expanded to cover these vessels, this would mean a huge and immediate hit to Russia’s war machine. As I showed in a previous post, US sanctions are far more effective at shutting down shadow fleet ships, because fear of secondary sanctions is so much greater. This threat would definitely get Putin’s attention and might even sway him to genuinely sue for peace in Ukraine.

Sanctioning the 359 shadow fleet ships could also have positive repercussions for the US economy. All the uncertainty over US geopolitical alignment is at the root of the ongoing debate over reserve currency status, which has lots of people wondering out loud if US Treasuries are still a good place to invest. The sooner this geopolitical ambiguity ends, the faster this debate dies, which should boost foreign demand for US Treasuries, thereby helping to keep long-term interest rates low. And we know the President likes low interest rates.