Energy Sanctions Roadmap: Recommendations for Sanctions against the Russian Federation

10 Травня 2022

We present the results of the work of a group of Ukrainian and international experts – Energy Sanctions Roadmap: Recommendations for Sanctions against the Russian Federation.

The document details energy sanctions, helping governments and companies around the world to compose proposals for sanctions against Russia.

Russia’s economy and budget are underpinned by revenues from the sale of oil and gas, primarily to Europe. Since the start of the war, the European Union (EU) has paid the Kremlin around $800 million daily to import Russian oil and gas. These payments finance Putin’s war against Ukraine. This working paper recommends policy options to deny Russia this revenue from energy sales, while at the same time minimizing disruption to markets and the global economy.

We endorse the European Commission’s decision to introduce a complete import ban on all Russian oil. We also recognize the Commission’s intention to phase in the ban in an orderly fashion over a number of months in order to minimize the impact on global markets and allow member states to secure alternative supply routes. Our proposals are in line with those communicated thus far by the EU and include specific mechanisms designed to enable an orderly phase-in of the import ban while also minimizing Russian oil export revenues during the phase-in period.

To achieve this aim, the paper sets out proposals for immediate European action to reduce Russia’s oil and gas revenues rapidly, combined with longer-term actions to eliminate Russian oil and gas sales to Europe and the Russian threat to European energy security. Several proactive strategies are proposed. In addition, mitigation strategies to counter potential weaponization of energy resources and to anticipate retaliatory actions in the gas sector are offered. As the critical objective is the maximal reduction of Russian export earnings, our goals remain to:

(1) Choke off Russian revenue from European energy imports via “smart embargoes” on Russian oil and gas, including an immediate embargo on Russian oil imports, as now proposed by the European Commission, and a graduated embargo on Russian gas imports; and

(2) Rapidly make Europe independent of Russian energy resources.

We propose two policy options – mechanisms can be implemented independently or in tandem – that countries could use to help achieve these goals:

(1) Impose a tax on the sellers of Russian energy into Europe in order to confiscate the funds that the Russian government currently captures in the form of export taxes; and

(2) Create an escrow regime to capture the balance of Russian export earnings so that they remain outside of Russian governmental control (in much the same way that existing sanctions have impacted Russian central bank reserves).

This paper focused heavily on gas, partly as a reflection of the increased consensus on the way forward for oil, following the European Commission’s proposal of a full embargo on European imports of Russian oil. But it also signifies the importance of denying Russia revenues from gas exports, since Europe has paid Russia far more for gas than for oil during the war. If Europe can cut its purchases of Russian gas, the associated gas export earnings would be eliminated, since Russia has nowhere else to sell its gas, whereas Moscow can for now sell the oil embargoed in Europe to Asia, albeit at a deep discount. Encouragingly, we see substantial progress in the effort to reduce European reliance on Russian gas, such as the recent German announcement that floating liquefied natural gas (LNG) terminals will be operational by year end, which brings the date of a full EU embargo on Russian gas closer.

Finally, although this white paper mainly discusses European actions, a European embargo should be part of a coordinated strategy with the United States that involves diplomatic action with other countries and engagement with private sector stakeholders.

Energy Sanctions Roadmap

Sanctions against Russia and the reconstruction of Ukraine after the war

KSE Institute