(This text in Finnish: https://www.viite.fi/2022/03/24/venajan-energialle-asetettava-sanktiotullit/)
Many sanctions have been set against Russia following its offensive on Ukraine, and more are on the way. Import tariffs would be one efficient way to sanction Russian energy. With them, Russian energy would incur an extra cost for each liter of oil or each cubic meter of gas, for example.
Import tariffs would have at least three effects:
- Russian energy companies would have to sell their energy with smaller profit margins. The oil production, for example, has very low costs for Russia and so far it has been able to exert significant profits. Russia would have to cut its profit margins to avoid the tariffs making its oil uncompetitive. If there is plenty of room to cut profits, then even high tariffs would not significantly increase the selling price and buyer costs but would lower Russian profits.
- If the price of Russian energy increases, the energy from non-Russian sources becomes more competitive, which increases its imports, to the detriment of the Russian energy.
- Due to the price increase from import tariffs, the use of fossil energy would be reduced in those countries and sectors where it is the easiest to reduce. They would implement energy savings and transition out of fossil energy. This would help also aid climate change mitigation.
All these effects contribute to Russia receiving less profits from its energy sales, which would impair its ability to fund its ongoing war. As for the energy still flowing to the tariff setting countries, those countries would receive extra income from tariffs.
Import tariffs could receive a wider support than downright import bans within EU countries, for example. They would ensure that countries dependent on fossil energy would receive it for the extent that they are willing to pay the higher prices caused by the tariffs.
The tariff rates could be flexibly increased or decreased, depending on Russia’s actions. A downright import ban would be worse policy option also because after it is implemented, it could no be implemented again, whereas tariffs could always be increased and thus used as a constant form of pressure to guide Russia’s actions. Tariffs could also be increased as alternative energy providers are ensured.
Russia could sell more of its energy to countries that have not set tariffs, but they could take advantage or Russia’s buyer shortage and bargain for lower prices for themselves, thus causing Russia economic losses. Already, Russian oil is being sold cheaper compared to the competition. Furthermore, transport connections set considerable limitations on how much of the natural gas sales can be redirected to other countries.
In any case, it would be beneficial to get as many of the world’s countries to partake in the punitive tariff system as possible. It is detrimental that countries that do not set the tariffs will benefit from the system in the form of cheaper energy prices. It would be important to encourage and pressure China, for example, to partake in sanctions against Russia, especially when considering that cheap energy may reinforce its alliance with Russia.
Chair, Finnish Greens for Science and Technology (Viite)