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Optimal tariff versus optimal sanction: The case of European gas imports from Russia

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  • Gros, Daniel
Abstract
Europe has set itself the aim of reducing its dependency on Russian gas imports. This paper provides an economic analysis of a tariff on imports of natural gas into the EU which would help achieve this goal. The starting point is Gazprom’s monopoly on exports of gas from Russia and pricing power on the European market. Standard trade theory implies that a tariff on Russian gas imports would be beneficial for Europe even on purely economic grounds because it would lower the demand curve Gazprom faces and induce it to lower prices. The standard linear model used here takes into account the availability of Liquified natural gas (LNG) supplies and confirms the general rule that it pays to levy a tariff on imports from a foreign monopoly. It yields the following numerical results: - Only one half of the tariff would result in higher prices for European consumers and the tariff revenue would be more than sufficient to compensate them for this loss. - The tariff, which maximises Europe’s welfare, would be close to one third of the price at which Europe would stop importing from Russia. This would cut Gazprom’s net revenues by approximately half. - If the tariff is used as a sanctions weapon to reduce revenues for Russia, the tariff should be higher (around 60 %) and would cut Gazprom’s revenues to one fourth of the free trade level. The overall conclusion is thus that an EU import tariff on Russian gas would have a major impact on Russia’s earning from gas exports and would certainly improve the European terms of trade.

Suggested Citation

  • Gros, Daniel, 2022. "Optimal tariff versus optimal sanction: The case of European gas imports from Russia," CEPS Papers 36006, Centre for European Policy Studies.
    • Handle: RePEc:eps:cepswp:36006
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    File URL: https://www.ceps.eu/wp-content/uploads/2022/03/CEPS-PI2022-12_Optimal-tariff-versus-optimal-sanction_.pdf
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    Citations

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    Cited by:

    1. Werner Roeger & Paul J. J. Welfens, 2022. "EU Gas Import Tariff Under Duopoly: A Contribution to the Energy Sanctions Debate on Russia," EIIW Discussion paper disbei314, Universitätsbibliothek Wuppertal, University Library.
    2. Ricardo Hausmann & Ulrich Schetter & Muhammed A Yildirim, 2024. "On the design of effective sanctions: the case of bans on exports to Russia," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 39(117), pages 109-153.
    3. Daniel Spiro, 2023. "Economic Warfare," CESifo Working Paper Series 10443, CESifo.
    4. Ehrhart, Karl-Martin & Schlecht, Ingmar, 2022. "Introducing a price cap on Russian gas: A game theoretic analysis," EconStor Preprints 261345, ZBW - Leibniz Information Centre for Economics.
    5. Ehrhart, Karl-Martin & Schlecht, Ingmar & Wang, Runxi, 2022. "Price cap versus tariffs: The case of the EU-Russia gas market," EconStor Preprints 261834, ZBW - Leibniz Information Centre for Economics.
    6. Simon A. B. Schropp & Christian Lau & Olim Latipov & Kornel Mahlstein, 2022. "Quantifying the impact of the latest U.S. tariff sanctions on Russia - a sectoral analysis," Working Papers 2022-08, The George Washington University, Institute for International Economic Policy.
    7. Becko, John Sturm, 2024. "A theory of economic sanctions as terms-of-trade manipulation," Journal of International Economics, Elsevier, vol. 150(C).
    8. Kornel Mahlstein & Christine McDaniel & Simon Schropp & Marinos Tsigas, 2022. "Estimating the economic effects of sanctions on Russia: An Allied trade embargo," The World Economy, Wiley Blackwell, vol. 45(11), pages 3344-3383, November.
    9. Josef Baumgartner & Elisabeth Christen & Gabriel Felbermayr, 2022. "Russisches Öl: Auswirkungen der EU-Sanktionen auf Österreich. Embargo oder Importzölle?," WIFO Research Briefs 14, WIFO.
    10. Simon Schropp & Marinos Tsigas, 2023. "Designing ‘optimal’ sanctions on Russian imports," The World Economy, Wiley Blackwell, vol. 46(3), pages 498-531, March.
    11. Weichenrieder, Alfons J., 2022. "A note on the role of monetary policy when natural gas supply is inelastic," SAFE Working Paper Series 360, Leibniz Institute for Financial Research SAFE.

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