U.S. Treasury officials informed reporters that the tariff concept would come at the G7 finance leaders meeting this week as an economically less costly way to siphon away oil revenues from Moscow while delivering faster results.
The officials expressed the tariff plan would aim to keep more Russian oil in the global market; this will alter price spikes spurred by a total embargo; meanwhile, it will limit the amount of money Russia can make from exports.
The EU’s executive body has suggested an embargo on imports of Russian crude; this will begin to phase in next year in reaction to Moscow’s war in Ukraine. Still, some eastern European countries are heavily pendant on Russian oil objects to the plan.
Yellen stated she discussed a wide range of options for reducing European dependence on Russian energy with EC President Ursula von der Leyen on Tuesday in Brussels; moreover, she added that tariffs and embargoes are two things that could be connected.
The Tariff Could Capture the Gap
Europe currently receives about half of Russia’s total crude oil and petroleum product exports; or approximately 2.2 million barrels per day (BPD) and 1.2 million BPD of petroleum products.
Yellen counted that she validated any plan the 27-member EU could agree on. Still, it is critically important to decrease their dependence on Russian oil.
She also promised U.S. help to meet the bloc’s energy needs; including working to improve global supplies of oil and gas.
The Treasury officials stated that because Russian oil sells at a discount to global benchmark crudes, a tariff could be at a level that would catch part of that gap and reduce Russia’s profits.
But it would have to be low enough that Russia makes more than its production costs, encouraging it to continue exporting.
By keeping Russian oil on the market, the officials stated, it would bypass potential further spikes in the price of oil from a European embargo, which could counteract the embargo’s impact on Russian revenues.