The recent ‘Liberation Day’ proclamation from Washington may have sounded like a campaign rallying cry, but in substance, it signaled a tectonic shift. The rules-based global trading order—already on life support—is now being read its last rites. Free trade is out; discretionary tariffs, strategic decoupling, and economic coercion are in. For energy markets, the implications are enormous.
The world’s largest importer of crude—Asia—is now staring at the sharp end of this new, protectionist world order. And China, no longer just a cog in the wheel, could very well be the one to determine how the wheel turns next.
The sweeping new tariff regime—anchored by a 10 percent universal import tariff and country-specific duties as high as 54 percent on China—has delivered a body blow to global trade.
The immediate casualty is oil demand from Asia. Market participants are already recalibrating expectations, and rightly so. Demand destruction, even if partial or temporary, is now very much on the table. Crude prices responded to these concerns not with a knee-jerk reaction, but with a deliberate, downward grind—perhaps signalling that this time, the fear has deeper roots.
The tariff shock only deepens its industrial slowdown. Vietnam, Bangladesh, and Sri Lanka—smaller but fast-growing refined product consumers—are also caught in the crossfire, now facing tariffs upwards of 40 percent.
Even India, not directly targeted, is feeling second-order effects. A weakening currency, sliding exports, and global freight contraction are all pushing down diesel and aviation fuel demand.
If that wasn’t enough, enter OPEC+ with its own curveball. In a move that’s left traders rubbing their eyes, the alliance has decided to accelerate its supply hike—pulling forward 411,000 barrels per day of production in May, compared to the originally expected 135,000 bpd. This surprise injection into an already queasy market feels oddly mistimed. Inventories are swelling, demand projections are wobbling, and recession warnings are blaring like sirens. Yet OPEC+ seems determined to press ahead as if reading a completely different script.
The oil market, ever-sensitive to shifts in demand, is reacting as it should: brutally and efficiently. The ripple effects of American tariff tantrums have already begun traveling east. With China under economic pressure and broader Asian economies from Vietnam to Sri Lanka bracing for the blowback, oil demand is bound to taper off in the near term. Diesel and jet fuel consumption are sagging, shipping volumes are crawling, and the optimism of a post-COVID energy rebound is evaporating fast.
This misalignment is now being viewed as a potential blunder. Analysts, including those at JP Morgan, have dialled up the probability of a global recession to 60 percent, and US GDP projections are being trimmed across the board. Instead of stabilizing the oil market, OPEC+ may have unwittingly added to the volatility, creating a potent mix of oversupply anxiety and demand-side doom.
The fear is no longer speculative; it’s structural. And with China signalling resistance to US pressure, yet still calculating its next move, traders find themselves groping in the dark, unsure if the next step forward is a stumble or a cliff.
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