U.S. Treasury officials said on Tuesday they plan to propose at this week’s G7 finance meeting that European countries impose tariffs on Russian oil, as a faster alternative to an outright oil embargo.
European Union officials are considering a phased embargo on imports of Russian crude as its next response to Moscow’s war in Ukraine, but concerns from some eastern European countries about supply represent a major obstacle to the plan.
The tariff mechanism to be proposed by the United States would be designed to keep Russian oil on the market but limit the amount of revenue that can flow to Moscow from exports, the Treasury officials told reporters in Brussels. Finance ministers and central bank governors from the Group of Seven rich nations are due to meet in the city later this week.
Because Russian oil sells at a discount to global benchmarks, a tariff could be set at a level that would both capture part of that gap and reduce Russia’s profits, the officials said. But it would have to be low enough that Russia earns more than its production costs, giving it an incentive to continue exporting, they added.
By keeping Russian oil on the market, the officials said, it would avoid potential further spikes in the price of oil from a European embargo, which could offset the embargo’s impact on Russian revenues.
The officials said there was a strong desire among many governments to stop buying Russian oil as quickly as possible, but that this carries a high risk that outright embargoes could increase the price of oil considerably.
The Treasury was looking at pricing mechanisms including tariffs to help protect the global economy from further damage from high energy prices, they said.
Tariff monies could be put into a recovery and reconstruction fund for Ukraine, satisfying a desire to make Moscow pay at least part of a massive rebuilding effort.
The suggestion comes after G7 leader Mario Draghi last week brought up the idea of forming a cartel of oil buyers to help limit prices during a meeting with U.S. President Joe Biden.