Janet Yellen targets Russian oil in EU talks with price cap and tariff proposals

US Treasury secretary Janet Yellen is stepping up talks with EU and G7 allies on a potential price cap or tariff on Russian oil, as Brussels struggles to reach a consensus among its member states on a full import ban.

Yellen raised the Biden administration’s ideas during a visit to the European bloc’s leaders this week and was expected to present them at a gathering of G7 finance ministers and central bank governors in Germany that starts on Wednesday.

“We discussed a wide range of options. We’re not trying to tell them what’s in their best interest, but [ . . . ] we discussed some of the things that are under consideration,” Yellen told reporters who were travelling with her in Belgium.

A US Treasury official said Washington was proposing a price “mechanism” — such as a tariff or price cap — that would be applied to Russian oil and serve as a bridge to the moment the EU might impose a full embargo.

“They are talking about the next year as a timeframe [for an embargo], and in the meantime it might be possible to combine a phaseout with a price mechanism,” Yellen said.

The US has already imposed its own ban on all imports of Russian energy, but it has been more difficult for the EU to do the same owing to its greater dependence on Russian energy. Brussels’ plans have so far also been stymied by opposition from Hungary.

Yellen’s talks with European allies on Russian oil came after Mario Draghi, Italy’s prime minister, floated the idea of a “cartel” of buyers of Russian energy in the wake of talks with Joe Biden at the White House. These were focused on reshaping global energy markets in response to the war in Ukraine.

The aims of a cap or tariff would be to limit energy revenues filling Moscow’s coffers, keep costs down to tame inflationary pressures and potentially even provide a way to help fund Ukraine’s reconstruction.

But the notion of a price cap on Russian energy imports has been faced resistance from Germany on the grounds that it would only work if applied universally.

“In principle, we’re open to the idea, but configuring it right will be very difficult — it will have to have the desired effect without leading to a complete oil shut-off,” said one German official.

Previous discussions between the EU and the US on the price cap had included enforcing a ban by making it more difficult for Moscow to sell to other nations, possibly by threatening sanctions against purchasers willing to buy Russian oil at higher prices.

But Germany has generally been sceptical about such measures. “You can probably only make a tariff/price cap work using secondary sanctions, but we would find that hard to accept,” the official said.

The EU has been struggling to advance proposals from the European Commission for a phased-in embargo on Russian oil imports amid resistance led by Hungary, which is among a handful of landlocked countries that are heavily reliant on Russian crude.

The commission will propose an energy package on Wednesday, dubbed RepowerEU, setting out a €200bn plan to wean Europe off Russian fossil fuels by 2027.

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