Russian energy tariffs are a smart way to hamper Vladimir Putin

JIT INDUSTRIAL outskirts of Lubmin, a town on the windswept Baltic coast of what was once East Germany, is not listed in any guidebooks. Rotterdam’s port, the grittier part of a city already struggling for charm, isn’t a big draw either. Certainly, the attraction of Notre-Dame or of Venice either, like Luis Garicano, a European deputy, professor of economics and recent excursionist can attest to this. Yet there are few places that could help a vacationer in Europe better understand what is really going on there today. In the Dutch port, ships from Russia quietly unload lakes of crude oil worth up to $80 million each, to be processed in European refineries. Even further from the public eye, the Nord Stream gas pipeline makes landfall in Lubmin, pumping Siberian gas for which customers in Germany and beyond return more than 160 million euros ($174 million) every day. It’s the dark economic underbelly of Europe, a continent that prides itself on helping Ukraine while paying nearly 40 billion euros for Russian energy since the start of the war eight years ago. weeks.

Banners at protests from Paris to Prague advocated simply shutting down the pipeline and refusing tankers carrying Russian crude. Yet successive waves of European sanctions have all but ignored oil and gas, even as drastic measures targeting other parts of the Russian economy have been adopted. Politicians wish they could stop payments to Kremlin coffers; The Germans prevented the opening of a new gas pipeline, a twin of Nord Stream. At the same time, they fear cold turkey on Russian gas will result in cold winter citizens. Voters are already feeling the pinch of high heating and gas bills. Companies are also struggling, especially in Germany, where dependence on Russian energy is acute. Estimates of the impact of an embargo on energy imports from the East on the European economy vary wildly, but are high enough to derail the consensus within the EU beyond partial restrictions on oil imports in the future.

If sanctions are not considered, Europe could instead consider high tariffs on Russian energy. Taxing oil and gas imports would not prevent them from heading west entirely. However, this would suppress the demand for Russian hydrocarbons as surely as taxes on alcohol and cigarettes would deter drinking and smoking. A similar “sin” tax on Russian oil would recognize that buying Russian energy is a form of commercial turpitude, given that the funds paid will fuel President Vladimir Putin’s war machine. Companies that release greenhouse gases into the atmosphere must compensate the general public by purchasing carbon permits. Today, Putinism is to geopolitics what climate change is to the planet: a problem that must be dealt with, and quickly.

The purpose of any sanctions regime is to impose crushing costs on the enemy while suffering little harm to yourself. Some economists believe that tariffs would even help the EU make a profit at the expense of Russia. Ricardo Hausmann, a former Venezuelan planning minister currently at Harvard, points out that if a punitive import tax – of perhaps 90% – were to be added to the price of Russian oil, European refineries would source crude from elsewhere at unless they benefit from a significant discount. Russia makes such huge profits on its oil – extracted for less than $6 a barrel and sold ten times as much – that it would still make sense for it to export it at the world price minus the tariff imposed by Europe (and Russian crude is already sold at a steep discount from benchmark rates). Since Russian pipelines and ports are primarily designed to serve Europe, rerouting oil and gas to other customers would be complicated and expensive. The new tariff would become a source of revenue for Europe, at the expense of the Kremlin.

Real life would be messier than economic models. But the larger point, says Guntram Wolff of Bruegel, a Brussels think tank, is that Europe has more options to replace Russian oil than Russia has options to replace European customers. Things are different with gas, as it is delivered through pipelines that connect producers and consumers. Europe cannot quickly replace much of what Russia provides, although to some extent it can switch entirely to gas from other places or to other forms of energy. A tax on gas would therefore be less likely to lower Russian prices in the short term; but as Europe diversifies its sources of supply, for example by building LNG terminals, it will become more viable. The money raised by a tax could be used to compensate users of Russian gas unable to turn away.

Mario Draghi, another economist, currently moonlighting as Italy’s prime minister, also wants to stifle Russian energy, but instead cap the price paid by Europe for its imported gas. In many ways, it looks like a tariff: you limit the flow of money to Moscow and force Russia to adapt. But this approach would do nothing to thwart Russian energy demand, on the contrary. This would encourage industry to demand more, not less, of Mr Putin’s now even cheaper gas. On the other hand, a rise in the prices of certain Russian energies would send the signal that those who currently use it should reduce their expenditure. Politicians demand it: Europe is aiming for a two-thirds cut in Russian gas imports this year, albeit partly on optimistic assumptions. A higher price of Russian gas, although painful, would encourage those who use it to wean themselves off.

The levy was high

The most likely outcome, Garicano says, is the current approach: do nothing. A levy on imports is at least a step in the right direction and politically feasible. It could be adjusted depending on the circumstances, unlike an all-or-nothing embargo. In normal times, taxing imports is frowned upon for fear of irritating trading partners. But upsetting the Kremlin would be a plus in this case. Russia could react by cutting supplies, but they are already threatening that anyway. the EU is right when it comes to wanting to break free from the shackles of Russian energy dependence. Now it takes the right approach. ■

Read more from Charlemagne, our columnist on European politics:
Thank the elderly for preventing European extremists from coming to power (April 16)
Europe learns to deal with Viktor Orban (April 9)
It will take years for Ukraine to become a member of the EU (April 2)