G7 looks at tariffs, price caps to cut Russian oil

Tariffs and price caps are among possible options the G7 group of major economies is discussing for strengthening the sanctions regime targeting Russia's energy exports, US treasury secretary Janet Yellen said today.

"A number of ideas have been discussed and you have probably heard tariffs, price caps, other possibilities that are on the table and we continue to look at those things," Yellen told reporters, speaking just ahead of the G7 meeting of finance ministers and central bank governors in Bonn, running from 18-20 May. No decision has been made, Yellen said, but added that the focus of future sanctions is on reducing the revenue Russia derives from oil and natural gas exports, rather than reducing physical volumes of exports.

The G7 group of major economies said it plans to reduce reliance on oil imports from Russia "in a timely and orderly fashion," signaling support for the EU's approach of gradual phase-out of such supplies instead of an outright ban like those imposed by the US and Canada.

A gradual approach would prevent immediate hikes in oil prices that would be counter-productive for the purpose of sanctions, US officials said previously — Russia could end up selling less but earning more for its exports if the price rises by a higher proportion than the volume falls.

The fear of sanctions has already led to lower exports from Russia. But its oil and gas sales receipts have consequently increased, Russian president Vladimir Putin said on 17 May. "Our partners' erratic actions have resulted in a de facto growth in revenue in the Russian oil and gas sector in addition to the damage to the European economy," Putin said.

President Joe Biden's administration has banned imports of Russian energy commodities into the US, but has a waiver in place excluding foreign buyers of Russian energy from US sanctions. The waiver expires on 24 June, but the administration said it would give sufficient notice whether it intends to terminate it or to renew it.

The EU is trying to hammer out an agreement between member states to end Russian oil imports this year but faces pushback from Hungary and other EU members.

The European Commission could present guidelines for a temporary bloc-wide gas price cap and other measures as part of a package of proposals, but the measure is focusing on gas and power prices, not oil.

Italy's prime minister Mario Draghi pitched a cap on oil prices or forming a "buyers cartel" as a way to mitigate the energy crisis and Opec production restraints in his meeting with Biden last week, but the White House did not publicly endorse the proposal.

By Haik Gugarats