yesIf we compare the first four months of 2022 with those of 2021, the income of the Russian federal budget increased by 34%. This increase is entirely due to the explosion in oil and gas prices, although the energy sanctions were intended, on the contrary, to increase the cost of the war for Russia and make it more difficult to finance it. At the same time, high energy prices have been very costly for Europeans.
Therefore, it is urgent to rethink these sanctions so that their consequences are more serious for Russia and lighter for European households and companies. Three solutions can be envisaged: embargoes, customs duties and price caps.
On May 30, the European Union (EU) decided to impose an embargo on imports of Russian oil and oil products that will only come into force in six to eight months. The announcement of this measure caused an immediate rise in the price of oil (around 5%), but it had been preceded by a rise since mid-May, when the embargo became more likely. Therefore, the anticipation of the announcement generated an unexpected effect for Russia.
Since the beginning of the war, the probability of future sanctions has also pushed up gas prices: in this market, despite the fact that storage levels have returned to normal, prices remain around four times higher than Before the war. Announcing an energy embargo without taking immediate action will have, in due course, had a double paradoxical effect: it will have increased prices for Europe and inflated revenues for Russia.
The experience of recent months also shows that, under political pressure, EU governments have partially protected households from the impact of these high prices (through discounts, tax cuts, market segmentation). The markets are convinced of this: governments will continue to do so in the event of further interruptions. These on-demand subsidies (very costly for the budget) can only drive prices up.
While governments have decided that businesses need time to adjust to a future embargo, that doesn’t mean nothing can be done now. Various instruments can be implemented and should be different for oil and gas. A tariff on Russian oil imports (as many economists recommended from the start) would have several advantages: it would reduce imports from Russia, as buyers would be better off switching to other sources, and it would probably push Russia to lower its prices for EU buyers in order to remain competitive with producers not affected by this tariff.
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