Imposing high tariffs on imported Russian gas: would it be effective?

As Russia’s invasion of Ukraine continues and many call for tougher sanctions, an alternative to a full energy embargo has been discussed in the form of European Union tariffs on imports of Russian gas. The Initiative on Global Markets interviewed American and European economists to express their views on this proposal. Romesh Vaitilingam write the results.


We asked the EU and US panels whether they agreed or disagreed with the following statement, and if so, to what extent and with what degree of confidence:

The high tariffs imposed by the European Union on imports of Russian natural gas would be an effective measure to reduce the flow of revenue to Russia while limiting disruptions in supplies to Europe.

Of our 43 American experts, 41 took part in this survey; of our 47 European experts, 36 participated – for a total of 77 expert reactions. Almost three-quarters of panelists agreed or strongly agreed with the statement (of which European experts were more likely to say they strongly agreed), most of the rest were unsure and a handful disagreed. does not agree.

Weighted by each expert’s confidence in their answer, 27% of the European panel totally agree, 48% agree, 22% are unsure and 3% disagree. Among the US panel (again weighted by each expert’s confidence in their answer), 6% strongly agree, 67% agree, 18% unsure, and 9% disagree. Overall, in both panels, 16% strongly agree, 57% agree, 20% are unsure, and 6% disagree (totals do not always add up to 100 due to rounded).

More details on the experts’ views come in the short comments they can include when participating in the survey. Among those who agree or strongly agree, Franklin Allen at Imperial College London says: “It would reduce the money going to Russia, mitigate the damage to European economies and potentially provide funds for the reconstruction of Ukraine”. Guillaume Nordhaus at Yale adds, “High and rising tariffs are clearly the best approach, primarily to avoid quantitative restrictions. And Christophe Udry at Northwestern directs us to a recent VoxEU article on ‘the simple economy of a tariff on Russian energy imports”.

Among the panelists who say they are undecided, Beata Javorcik in Oxford comments:

“Russia is likely to retaliate and cut off gas supplies to Europe.” Austan Goolsbee at Chicago notes, “It would hurt them, but it would also hurt Europe.” And Pastor Lubos in Chicago says: “It would harm EU countries unequally. Solidarity within the EU would be necessary. Gas is difficult to replace in the short term.

Among the panelists who say they are undecided, Beata Javorcik in Oxford comments:

“Russia is likely to retaliate and cut off gas supplies to Europe.” Austan Goolsbee at Chicago notes, “It would hurt them, but it would also hurt Europe.” And Pastor Lubos in Chicago says: “It would harm EU countries unequally. Solidarity within the EU would be necessary. Gas is difficult to replace in the short term.

Any experts who disagree with the statement add short explanatory comments to their opinions. They include Pinelopi Goldberg at Yale who says, “Sanctions have never worked. And in the current context, the EU would pay a high price. Richard Schmalensee at MIT protests: ‘WTO-illegal, may violate contracts, Russian response uncertain’. EU economists seem to favor price caps contingent on disturbances. And Bengt Holmström at MIT concludes, “If efficiency means ending war, tariffs won’t.”

Elasticities and pricing mechanisms

Several panelists suggested the importance of demand and supply elasticities for Russian gas, as well as the mechanisms by which prices are set. Of those who agree, David Author to MIT’s remarks: “The high substitutability of non-Russian and Russian gas means that Russia should bear most of the impact. Olivier Blanchard at the Peterson Institute mentions: “Russia could decide to sell elsewhere, but at a lower price (Ural discount). May not decrease world supply much. And Patrick Honohan at Trinity College Dublin warns: “But effectiveness depends on elasticities of substitution in importing countries, about which there is a wide range of opinions.

Others who agree are equally cautious. Larry Samuelson at Yale observes: “There is a trade-off – higher tariffs would be more effective in limiting revenue, but would also cause more disruption. And Pol Antras at Harvard says, “Given the likely price impact, this seems like a good policy. But I’m less sure the supply won’t be disrupted. In any case, a risk worth taking. He directs us to a play written shortly after the invasion of the case for punitive taxes on Russian energy.

Panelists who said they were unsure also mentioned elasticities and likely impact. Karl Whelan at University College Dublin responds: ‘It is unclear where the short-term impact of this tariff lies. With difficulties in finding alternative supplies, this could simply increase EU prices. Anil Kashyap in Chicago says, “It’s hard to know the elasticity of demand and the speed at which adjustments can be made.” Daniel Sturm at the London School of Economics adds: “It is unclear whether the tariffs would lead to substantial declines in Russian export prices over a relevant time horizon.” And Christian Lez in Chicago concludes: “Could send a very important political and symbolic message. But economic effect difficult to predict; depends on elasticities of supply and demand and pricing mechanisms.

Opinions on likely elasticities are also expressed by experts who disagree with the statement. Jan Pieter Krahnen at the Goethe University of Frankfurt declares: “It is a question of tariff incidence; gas demand is currently price inelastic, so the exporter’s revenue may not fall at all. And Michael Greenstone in Chicago suggests that: “In the short term, tariffs wouldn’t do much: there are no substitutes. A longer-term gradual introduction would work best.

Full embargo

Finally, two of the experts who agree refer to the alternative sanction to energy tariffs of a total embargo. Daron Acemoglu at MIT says: “‘Effective’ yes, but probably not as effective as total bans. The exact effect on Europe is also difficult to know. And Pete Klenow at Stanford links to a widely discussed report on the potential economic effects on Germany of a halt to all energy imports from Russia.

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Remarks:

  • The survey is conducted regularly on different topics by The Initiative on Global Markets, University of Chicago Booth School of Business. All comments made by the experts are included in the full survey results for the WE and European panels.
  • The post office represents the point of view of its author(s), and not the position of LSE Business Review or the London School of Economics.
  • Highlighted picture by Quinten de Graaf on Unsplash
  • When you leave a comment, you agree to our Comments Policy.

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