EU May Combine Tariffs on Russian Oil with Embargo, Yellen Says

By David Lawder

BRUSSELS – The European Union may introduce import tariffs on Russian oil alongside a phased oil embargo aimed at reducing Russia’s energy revenues, U.S. Treasury Secretary Janet Yellen stated on Tuesday.

The proposal for tariffs will be discussed at a G7 finance leaders meeting this week as a potentially less costly method to diminish oil revenues for Moscow while yielding quicker results, according to U.S. Treasury officials.

The tariff strategy is designed to keep Russian oil available in the global market, which would help prevent price surges that could occur with a full embargo while still limiting Russia’s export earnings, the officials explained.

The European Commission has suggested an embargo on Russian crude oil imports that would begin to phase in next year as a response to Moscow’s actions in Ukraine. However, some eastern European nations that rely heavily on Russian oil have expressed objections to this plan.

Yellen reported that she had conversations with European Commission President Ursula von der Leyen in Brussels, discussing various options to decrease European reliance on Russian energy. She noted that tariffs and embargoes could potentially be used in tandem.

"We’re not trying to dictate what’s in their best interest, but we did discuss some of the options under consideration," she remarked.

Currently, Europe imports approximately half of Russia’s crude oil and petroleum product exports, translating to about 2.2 million barrels per day of crude oil and 1.2 million barrels per day of petroleum products.

Yellen emphasized her support for any strategy that the EU’s 27 member states can agree on, stating that "it is critically important that they reduce their reliance on Russian oil." She also offered U.S. assistance in strengthening the bloc’s energy supply, including efforts to bolster global oil and gas supplies.

Treasury officials mentioned that because Russian oil is sold at a discount compared to global benchmark prices, a tariff could be established at a level that captures part of this discount while simultaneously reducing Russia’s profits. However, the tariff would need to be set low enough to ensure that Russia continues to earn more than its production costs, providing an incentive for them to maintain exports.

By keeping Russian oil on the market, the officials noted, they would help avoid potential spikes in oil prices resulting from a European embargo that might counterbalance the embargo’s intended effect on Russian revenues.

There is significant political motivation among many governments to cease purchases of Russian oil swiftly, but such actions pose a high risk of driving oil prices up substantially. The Treasury is exploring price mechanisms, including tariffs, to safeguard the global economy from further strains caused by high energy costs.

Funds generated from tariffs could potentially be allocated to a recovery and reconstruction initiative for Ukraine, aligning with a desire to hold Moscow accountable for contributing to rebuilding efforts.

This discussion follows G7 leader Mario Draghi’s recent proposal to establish a buyer’s cartel to help stabilize prices during his meeting with U.S. President Joe Biden. Yellen reaffirmed the U.S. commitment to assist in meeting European energy requirements, which includes collaborating with partners to increase liquefied natural gas exports to Europe.