Yellen: European ban on Russian energy may do more harm than good

Treasury Secretary Janet Yellen on Thursday raised doubts about how much a European ban on Russian energy imports would hurt the Russian economy.

During a Thursday press conference, Yellen said it was essential for the European Union to end its dependence on Russian oil, natural gas and coal imports — a critical energy supply for Europe and a steady stream of foreign revenue for Moscow. But Yellen said a total embargo on Russian energy imports may do little to hinder Russia’s economy while crippling Europe with staggering price increases.

“Europe clearly needs to reduce its dependence on Russia with respect to energy, but we need to be careful when we think about a complete European ban on, say, oil imports,” Yellen said.

Russia provides roughly 27 percent of crude oil, 47 percent of coal and 41 percent of natural gas imported by the E.U. in 2019, according to the European Commission. 

If the E.U. spurned Russian energy imports, European countries would likely pay much more for oil, coal and gas from other nations with new power to set higher prices, Yellen argued. And while Russia could no longer sell vast volumes of fuel to Europe, it could sell smaller quantities at much higher prices to friendly or neutral nations.

“That would clearly raise global oil prices, it would have a damaging impact on Europe and on other parts of the world, and, counterintuitively, it could actually have very little negative impact on Russia, because although Russia might export less, the price it gets for its exports would go up,” Yellen said.

Europe’s dependence on Russian energy imports has been a stumbling block for the U.S. and its allies as it seeks to dial up economic pressure on Russia. The U.S. and its allies have exempted payments related to Russian energy imports from sanctions in order to shield Europe from debilitating price hikes. While the U.S. banned Russian energy imports in March, the move was largely symbolic and covered just 5 percent of the country’s total oil imports. 

Despite wide-ranging sanctions on the Russian government financial sector and the mass exodus of dozens of businesses, Russia has been able to limit the economic damage thanks to a steady stream of oil and gas revenue. But the U.S. has resisted pushing Europe to ban Russian energy imports despite growing pressure from lawmakers in both parties and the pleas of Ukrainian government officials.

“Proceeds from sales of oil and gas are an important source of income for Russia. It would be very useful to try to devise a way to reduce Russia’s proceeds from those sales,” Yellen said.

“That really is the proper objective of a ban. But if we could figure out a way to do that without harming the entire globe through higher energy prices, that would be ideal. And that’s a matter that we’re all trying to think through together,” she continued.