U.S. Floats Tariff on Russian Oil as EU Oil-Sanction Talks Drag On

Even as the EU debates an oil embargo on Russia, the U.S. is talking to European allies about a tariff or possible price-cap mechanisms like a buyers cartel, which would prevent Russia from benefiting from oil-price rises while keeping the cost of oil stable for European and other buyers.

A possible tariff could go into effect ahead of the oil embargo, which would go into place at the end of the year for many EU countries, and the U.S. sees a tariff as having a more immediate impact on the revenue Russia derives from its oil sales, according to the officials. A tariff would reduce Russian revenue from oil sales, while still allowing Europe to purchase oil and reducing stress on global energy markets, according to the officials.

“They’re talking about the next year as a time frame and in the meantime it might be possible to combine a phase-out with a price mechanism, but there are a lot of options here. It is critically important that they reduce their dependence on Russian oil. We’re very supportive of it,” Ms. Yellen said after meeting with EU Commission President

Ursula von der Leyen

Tuesday.

“I think they want to move pretty quickly here and some of the ideas about price caps and tariffs are things that we will have to take longer to see if they’re workable,” Ms. Yellen said.

The European Commission declined to comment on the U.S. ideas but Ms. von der Leyen said on Twitter after meeting with Ms. Yellen that the EU and U.S. “will keep on coordinating closely” on sanctions.

The EU’s executive body two weeks ago proposed a phased-in oil embargo that would ban the import of Russian crude oil in six months and ban the purchase of Russian refined products by year’s end. Hungary and Slovakia were given extra time to transition away from Russian oil. At the time, the commission had explored other ideas, including tariffs and placing Russian oil revenue into escrow accounts but they didn’t move forward with the ideas, EU officials said.

However, Hungary has spearheaded opposition to the oil embargo, saying it would have a devastating impact on its economy and pushing for more time and EU funds to help it make the transition in exchange for support. There are growing concerns among EU officials that Hungarian Prime Minister

Viktor Orban’s

government will veto the proposal entirely.

In recent weeks, Ms. Yellen’s caution about an oil embargo has filtered into European discussions, although it didn’t ultimately stop the European Commission from proposing the oil ban. German officials have said they don’t believe tariffs on Russian energy imports are practical, fearing they could provoke Moscow to cut off supplies and wouldn’t stop non-European countries from stepping in and scooping up Russian oil instead.

With the oil embargo already hanging in the balance, Washington’s push for temporary measures has the potential to further complicate the EU’s already difficult discussions. Officials are eager to have the embargo agreed to well before a summit of the bloc’s leaders at the end of May.

“It would be more helpful if [the U.S.] got on the phone to call Budapest to close ranks than…floating new ideas,” an EU diplomat said.

The U.S. Treasury has similar concerns about the economic impact of a proposed EU ban on insuring ships carrying Russian oil—another way to de facto ban the transport of exported Russian oil—according to the officials.

While in Brussels on Tuesday, Ms. Yellen delivered a speech calling on Europe to bolster its financial aid for Ukraine during the war at a time when U.S. lawmakers are expected to soon approve a roughly $40 billion aid package. Financial support for Ukraine is one of the items on the G-7 agenda.

She also said the U.S. and EU should work together on pressuring China to change its economic behavior, part of a broader push by Ms. Yellen to limit the economic power of potential political rivals.

“We have become too vulnerable to countries using their market positions in raw materials, technologies or products to exercise geopolitical leverage or disrupt markets for their own gain,” she said.

Crimping Russia’s revenue streams from its energy sales, while protecting the European and world economy from deep damage, has been a central challenge for the West as it has sought to punish Russia for its invasion of Ukraine.

Whether to put into place a tariff or another price-cap mechanism on Russian oil, though not on the official agenda of this week’s G-7 meeting, is set to be a central topic of discussion, according to the officials, and the U.S. is hoping to talk through the economic consequences of the proposed moves at the meetings.

European officials have also raised concerns about rising energy prices caused by Western efforts to cut off Russian energy revenue. In the U.S. last week, Italian Prime Minister

Mario Draghi

said he discussed with President Biden the setting a cap on the price of Russian oil and gas, as well the possibility of forming a buyer’s cartel for energy purchases.

Greek Prime Minister

Kyriakos Mitsotakis

said at the White House on Monday said the U.S. and Europe should work to reduce the price of energy, and specifically gas.

“The sanctions we have imposed on Russia are crushing, and rightfully so, but as we discussed, we must not lose sight of the fact that our societies are paying a heavy price in terms of energy prices,” Mr. Mitsotakis said during a reception at the White House.

Write to Andrew Duehren at [email protected] and Laurence Norman at [email protected]