US proposes tariffs on Russian oil as alternative to embargoes

A general view shows the oil refinery of the Lukoil company in Volgograd, Russia on April 22, 2022. Photo taken with a drone. REUTERS/REUTERS PHOTOGRAPHER

BRUSSELS, May 17 (Reuters) – U.S. Treasury officials said on Tuesday they planned to propose at this week’s G7 finance meeting that European countries impose tariffs on Russian oil, as an alternative more fast to an outright oil embargo.

European Union officials are considering a phased embargo on imports of Russian crude as the next response to Moscow’s war in Ukraine, but supply concerns in some Eastern European countries pose a major hurdle to the plan. Read more

The tariff mechanism to be proposed by the United States would be designed to keep Russian oil in the market but limit the amount of revenue that could flow to Moscow from exports, Treasury officials told reporters in Brussels. Finance ministers and central bank governors from wealthy Group of Seven nations are due to meet in the city later this week.

Since Russian oil is selling at a discount to global benchmarks, a tariff could be set at a level that would both close some of that gap and cut Russia’s profits, officials said. . But it would have to be low enough for Russia to earn more than its production costs, giving it an incentive to keep exporting, they added.

Keeping Russian oil on the market, officials said, would avoid potential further oil price hikes resulting 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 soon as possible, but that this carries a high risk that outright embargoes could significantly increase the price of oil.

The Treasury was considering pricing mechanisms, including tariffs, to help protect the global economy from further damage from high energy prices, they said.

The money from the tariffs could be invested in a recovery and reconstruction fund for Ukraine, satisfying the desire to make Moscow pay at least part of a massive reconstruction effort.

The suggestion comes after G7 leader Mario Draghi raised the idea of ​​forming a cartel of oil buyers to help limit prices during a meeting with US President Joe Biden last week.

Reporting by David Lawder; Editing by Andrew Heavens and Catherine Evans

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