U.S. sanctions on Russian energy firms present a headwind for a possible trade agreement between President Donald Trump and Chinese counterpart Xi Jinping later this month, according to BCA Research.

Earlier this week, Trump announced sanctions on Russia’s largest oil companies, Lukoil and Rosneft, with his administration citing Moscow’s “lack of serious commitment to a peace process to end the war in Ukraine.”

Treasury Secretary Scott Bessent added the companies funded “the Kremlin’s war machine,” and that the Treasury was prepared to take more action against Moscow.

In a note to clients, analysts at BCA including Matt Gertken and Jesse Anak Kuri suggested that China has demonstrated support for Russia, both economically and politically, during its conflict with Ukraine. With Beijing’s backing, Moscow felt emboldened to try to take extra land in Ukraine’s Donbas region, a move that drew the ire of U.S. officials pushing for a ceasefire along the current line of fighting.

With this in mind, "the odds of a U.S.-China trade deal (or outline deal) will decline in the near term," the BCA analysts argued, adding that they see just a "50/50" chance of an agreement being reached over the next 12 months.

Trump and Xi will also have "less to talk about" when the two hold their planned meeting in South Korea next week "because the chances of
larger US punitive measures against China for doing business with Russia are rising," the analysts said.

"In that case China will be reluctant to offer trade concessions."

Against this backdrop, they recommended traders take an overweight position in U.S. and global safe-haven assets in the very near term, even in the event of a correction in a recent rally in gold.