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The EU’s reluctance to impose tough sanctions on Russian energy is prolonging the war • The Berkeley Blog

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Co-authored by Tania Babina at Columbia College, Tetyana Balyuk at Emory College, Anastassia Fedyk at UC Berkeley

The European Union (EU) international locations have paid over 13 billion {dollars} for Russian oil, gasoline, and coal since Russia invaded Ukraine on February 24, 2022. In the meantime, Ukraine is heroically defending not solely its personal freedom, but in addition the liberty of the EU and different democracies all over the world. The dissonance between the sacrifices made by Ukrainians and the shortage of sacrifices made by the EU international locations can’t be sharper.

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Supply: https://beyond-coal.eu/russian-fossil-fuel-tracker/, March 16, 2022.

Ukraine offers every little thing it has to battle Russia, whereas the remainder of Europe is somewhat silent in a single essential respect: Russian vitality. It’s crystal clear that the EU has the important thing to pressure Putin to cease this warfare and stop the world from sliding into the legislation of the jungle. With no vitality revenues, the Russian financial system will expertise a blow that no dictator can afford.

So, why not do it now, when the time is so important for Ukraine’s survival and for the protection of different international locations? German Chancellor Olaf Scholz and different EU leaders recommend that stopping imports of Russian vitality can push their economies right into a recession. Outstanding Western European economists disagree. Moreover, the coverage doesn’t need to be solid in “all or nothing” phrases, and the free world has a lot of levers to economically destroy Putin’s warfare machine.

For instance, EU international locations use pure gasoline for heating and producing electrical energy. However electrical energy can come from a wide range of sources, thus enabling the EU to substitute electrical energy generated by energy vegetation burning gasoline with electrical energy generated elsewhere, together with Europe’s current nuclear energy vegetation and renewable vitality choices equivalent to geothermal and inexperienced hydrogen. Pure gasoline may also come from locations apart from Russia. General, whereas Europe’s present dependence on Russian oil is unsettling, the state of affairs is just not as dire because it may appear at first look. Over almost a decade of low vitality costs, Western corporations equivalent to Chevron have targeted on making substantial effectivity positive factors. Now that crude oil costs are hitting $115/Bbl, producers that historically have greater prices, equivalent to these in the US, are poised to increase provide.

Within the quick time period, the EU can impose a 90% punitive tax on Russian vitality as suggested by Ricardo Hausmann. He argues that as a result of the provision of vitality is inelastic, the incidence of this tax will fall on Russia. Russia’s reliance on pipelines to move gasoline limits its means to materially redirect flows of pure gasoline from Europe to different locations. As well as, Russia has restricted gasoline storage capacities and current ones are virtually full. What’s going to Russia do if it can’t promote or retailer the pure gasoline it produces? The EU has a lot of precedents of slapping punitive tariffs even on better-behaving international locations. Selecting between no income and a few income, Russia could have little selection. An identical level applies to grease.

If the EU can reduce its consumption of Russian vitality considerably—say by 80%, which doesn’t require chopping all consumption of Russian vitality and corresponds to chopping EU’s total vitality use by solely 32% for gasoline and 24% for oil—Putin’s regime will lose money flows which might be essential for him within the present situations. Dependence on Russian vitality is just not a essential situation for Europe. Earlier than the Nineties, the makes an attempt by the USSR to increase vitality provides to Europe had been largely resisted—with administrations from JFK to Ronald Reagan understanding the hazard of potential dependence on Soviet vitality—and solely a small fraction of European vitality imports got here from Russia. Weaning Europe again off of Russian vitality is feasible and will likely be more cost effective to Europe than to Russia.

There isn’t any doubt that Putin will attempt to promote Russian oil to different international locations which might be much less involved with the morals of the Russian warfare in Ukraine. The wide spread between Urals (a mix of Russian oil) and Brent (a benchmark mix of North Sea oil) already means that there are limits to such diversions, however there’s extra to return. A snowballing monetary disaster has already put Russia getting ready to default. The Russian authorities threatens to nationalize foreign-owned belongings of a torrent of corporations exiting Russia. Russian airways refuse to return leased plane. These occasions imply that collectors will likely be chasing Russian belongings all around the world. Russian tankers will likely be arrested as quickly as they enter a port of a rustic that acknowledges worldwide legislation. In an analogous spirit, non-Russian tankers will likely be arrested once they carry Russian oil.

As well as, vitality trades are sometimes performed in main currencies such because the US greenback and the euro. This makes purchases of Russian oil or gasoline weak to monetary sanctions. Certainly, banks utilizing {dollars} or euros to clear transactions with Russian oil could face enormous penalties. For instance, Deutsche Financial institution was fined $258 million for serving to Iran to bypass US sanctions. Russian vitality will likely be so poisonous that few monetary establishments will dare to service it.

The hesitation of the EU to impose powerful, significant sanctions on Russian vitality prolongs the warfare. And daily of delays and bickering results in new deaths and unspeakable struggling in Ukraine. If Ukrainians discover the braveness to combat in probably the most troublesome situations, EU leaders should discover the braveness to do the appropriate factor and crush the financial means of Russia to wage its warfare in Ukraine. Such braveness now will solely make Europe stronger in the long run.

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