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May 28, 2022
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Tariffs instead of an embargo: the EU is trying to get out of the energy impasse

Tariffs instead of an embargo: the EU is trying to get out of the energy impasse

Photo: Stefan Klein / imageBROKER.com / Global Look Press

The Europeans cannot agree among themselves on the introduction of a complete embargo on the supply of Russian oil. Head of the European Commission Ursula von der Leyen admitted that it has not yet been possible to agree on the inclusion of this measure in the sixth package against Russia, which is planned to be adopted on May 30-31. The Europeans do not completely abandon the embargo threats, but, apparently, they are beginning to look for ways to retreat, at least until they manage to rebuild oil flows on the world market.

Thus, a member of the European Parliament (EP) from Slovakia Evgeniy Yurzika expressed an opinion on the possibility of introducing duties on energy resources from Russia instead of an embargo. The parliamentarian presented his proposal in an appeal to the European Council. Referring to the analysis of the Bruegel research center, the deputy noted that this measure would be the most effective option for the EU to impose sanctions on Russian energy resources.

“Trade bans lead to a reduction in the supply of goods and an increase in prices, while the profit from price increases remains in the exporting country. With the introduction of duties, the cost of goods still grows, but the money received from this growth remains in the importing country, ”Yurzica said.

A similar measure was proposed by the Prime Minister of Poland Mateusz Morawiecki. True, if the Slovak deputy proposed to force Russia to pay duties, Morawiecki went further and wants to “punish” the European countries that dared to buy Russian energy in this way.

“If someone imports oil from Russia for longer and buys it cheaper, since it is important for Russia to sell oil at any cost, then he cannot receive benefits that those countries and entrepreneurs who have abandoned oil faster will not have,” said Morawiecki. proposing to prescribe appropriate measures within the long-suffering sixth package of sanctions.

Morawiecki recalled that there are at least four states in the EU – Austria, Hungary, Slovakia and the Czech Republic – that cannot quickly stop buying oil from Russia and seek to extend the transition period in the event of an embargo on Russian oil up to several years. It is these “renegades” that Morawiecki wants to force to pay additional duties, however, it is not clear to whom, maybe in the common EU treasury, or maybe for further military assistance to Ukraine.

Theoretically, the introduction of import duties on Russian oil in one form or another is possible. But, as explained by “SP” Alexey Belogoryev, Deputy Chief Director for Energy at the Institute of Energy and Financefor Russia, which already sells its raw materials at a discount, this is unlikely to be a matter of principle. As for the Europeans, it is important for them to make a political gesture in the form of an embargo, which they cannot agree on in any way, but the introduction of import duties does not sound so ominous. However, this does not mean that the EU will not gradually abandon Russian oil – German Chancellor Olaf Scholzfor example, on May 26 he promised to do it before the end of the year. But the Europeans have not yet succeeded in making a loud “door slam”.

“In fact, this step has been discussed since the beginning of March,” says Alexei Belogoriev. – This is one of the options that was in the field of multilateral discussion. But the embargo is considered a more decisive and effective step. Many countries, including Germany and France, believe that the introduction of import duties or other financial restrictions is already a past stage and not a measure that can have a noticeable impact on Russia.

The main problem with duties is their size. If it is more than 35-40%, it will simply be more profitable for Russian companies to sell their oil at the discounts that are now available on the world market. And today, Russian oil has an average discount of 30-35 dollars in relation to varieties of similar quality. If Brent costs $105 per barrel, then our raw materials are sold at $75 in all new markets and partly in European ones.

If the duty is so high that the seller will have less than $70 left, he will simply sell on another market, and Europe will lose these volumes anyway. If the duty is lower, then for Russian companies it will not be so important.

In addition, the duty is a problem from the point of view of the WTO. The introduction of duties threatens with the prospect of many years of litigation due to violations of the rules of the organization. So the introduction of duties is a complex and cumbersome mechanism, its effectiveness is not fully understood, and, moreover, it will still lead to higher prices in Europe. Tariffs will limit supply in one way or another, which means that prices will rise, and since prices will rise, Russian companies will also sell their raw materials at a higher price, in European or other markets.

“SP”: – Isn’t the embargo contrary to WTO rules?

– The fact is that the WTO agreement allows the use of emergency measures in emergency situations. Further, the question of justifying this emergency arises, but from the point of view of the letter and spirit of the embargo rules, it is possible. Tariffs are a different story, because they are not an emergency measure, they are an economic mechanism. Although in general I do not think that Russia today has great prospects to achieve something within the framework of the WTO, but the proceedings can drag on for a long time.

“SP”: – Can the EU impose duties on those who want to buy Russian oil, as Morawiecki suggests?

– You need to understand what the introduction of an embargo means in principle. The supply on the oil market is limited. Today, the global market is teetering on the edge of a deficit. Under these conditions, Russian oil, albeit at a discount, will in any case find its place on foreign markets. There will simply be a substitution – Saudi oil will go to Europe, and Russian oil – to those countries where the Saudis used to send their raw materials. At the same time, other countries will also save a lot – Europe, after all, will buy at market prices, while other states, such as India – at a big discount, from which they will only benefit.

Partial substitution of Russian oil is already underway. Russia is still losing both in sales and in oil production. But, it seems to me, the main drop has already occurred, and further volumes will not decrease much.

Returning to the embargo, this is not so much an economic measure as a loud political statement both for the domestic consumer and for Russia itself. The Europeans want to thereby show that they are operating from a position of strength. In fact, some countries are already replacing Russian oil. The same Germany has declared that before the end of the year it will refuse our raw materials. But if the FRG just starts buying Saudi or American oil instead of Russian, it will not be a big political move. It is important for them to demonstrate their unity and determination.

It is no coincidence that the sixth package of EU sanctions is constantly being postponed precisely because European countries cannot agree on a unanimous embargo on oil. If they accept the package without this measure, it may be seen as a signal that the EU’s position in the Ukraine crisis has weakened and that it has no leverage over Russia. At the same time, the economic effect due to the refusal of individual countries like Germany may be the same, but the resonance is not at all the same as from the embargo. In the same way, the effect of the introduction of duties will not be the one that the EU is counting on.

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