Russia Energy Levy to Fund Ukraine Faces Hesitance in EU

The Baltic members of the European Union are pushing ahead with alternatives to a full bloc embargo on Russian energy imports, officials have told Newsweek, despite hesitance from leading members related to the potential economic impact of a sudden break from Moscow's fossil fuels.

The EU and NATO Baltic states—Poland, Estonia, Latvia, and Lithuania—have long warned their allies of the severity of the Russian threat, and pushed for greater assistance to Ukraine. Now, this combined eastern flank is leading the charge for more punitive sanctions on Moscow, among them a full embargo on all Russian energy.

An embargo does not have the support of key EU leaders. Among them is German Chancellor Olaf Scholz, who said a ban would cause a severe recession. Dutch Prime Minister Mark Rutte dismissed the proposal as unrealistic.

Baltic nations are now probing more creative and less severe alternatives. Estonia's Prime Minister Kaja Kallas has proposed a new levy on all EU-Russia energy transactions, with the proceeds used to help fund reconstruction in Ukraine. Polish Prime Minister Mateusz Morawiecki has called on the European Commission to introduce a new tax on Russian fossil fuels.

An Estonian diplomatic official, who spoke with Newsweek on the condition of anonymity, said Tallinn believes its plan has buy-in from several EU and NATO allies.

Before last week's EU and NATO summits in Brussels, the official said Estonia's plan already had support from Lithuania, Latvia, Finland, Sweden, Czechia, Slovenia, and Slovakia. The summits did not make significant progress on this matter, but the official said this support for Estonia's proposal remains.

"The most principal refusers are Germany and the Netherlands," the Estonian official said.

Both nations have repeatedly spoken out against a ban on Russian fuel, though both nations have also committed to reducing dependence on Moscow in the longer term.

The German and Dutch foreign ministries did not respond to Newsweek's request for comment on their position in time for publication.

A Latvian diplomatic official, who also did not want to be named, told Newsweek that there are ongoing discussions between Tallinn and Riga. The talks were welcomed by the Latvians, the official said, noting they were still at an early stage and being conducted bilaterally rather than at the EU level.

Latvian Foreign Minister Edgars Rinkevics has already suggested that all frozen Russian assets—whether owned by the government or individuals—should be used in reconstruction efforts in Ukraine.

The Finnish and Lithuanian foreign ministries both declined to comment on their possible support for the Estonian plan. The Swedish government also declined to comment, noting that the proposal is not being formally considered either in Stockholm or by the European Council.

Slovenia's foreign ministry told Newsweek it is among the nations supporting a potential European fund for the reconstruction of Ukraine.

"Slovenia welcomes international community discussions about extending collective support to Ukraine, including about the post-conflict assistance to the country," a spokesperson said.

"We are looking forward to working closely with Estonia and other EU members, as well as the rest of the international community, on these matters."

The Polish foreign ministry did not respond to Newsweek's request for comment in time for publication.

France—historically considered one of the EU's two main pillars alongside Germany—appears more open than Berlin to further energy sanctions. Asked about an embargo earlier this month, Trade Minister Franck Riester said, per Euractiv: "France is ready to take additional decisions to put pressure on Russia if necessary".

Paris has been hesitant to cut the few remaining lines of contact with President Vladimir Putin, hoping continued engagement may help end the fighting. President Emmanuel Macron has spoken with Putin around a dozen times since the invasion began on February 24.

A French foreign ministry spokesperson told Newsweek that Foreign Minister Jean-Yves Le Drian will be discussing the "next phases of increasing pressure" during this week's visits to the Baltic and Nordic regions.

The French spokesperson also noted that the European Council has already taken action against Russia, and is in discussions on further measures. The European Commission is due to present a plan to end EU dependency on all Russian fossil fuels by the end of May.

The Estonian and Polish proposals, though similar, do differ. The Estonian plan would freeze a portion of the money due to be paid to Russia, setting it aside for use in Ukrainian reconstruction.

How much would be frozen remains unclear. The portion held could be increased or decreased depending on the political situation, which may give the EU side more leverage over Moscow.

The Polish proposal would operate as a straightforward tax, which would raise costs for both sides. Morawiecki said this week that the plan would ensure "that trade happens in a fair way." Warsaw has also announced its intention to end all fossil fuel imports from Russia by the end of 2022.

The European Commission will have to consider both plans, probe whether there is unified European support for the proposals, and establish a legal framework for their implementation.

Moscow will not be pleased with either proposal. Putin has already threatened to stop all gas exports to "non-friendly nations"—including all of the EU—unless they continue to pay in rubles.

The EU has so far refused to meet Putin's ultimatum. Moscow has reportedly suggested a loophole by which Western customers could still pay in foreign currency, but do so via a designated bank that has not been sanctioned.

Newsweek has contacted the Russian Foreign Ministry to request comment on the Estonian and Polish proposals.

Cutting off all gas to Europe would be painful for the EU, but would also deprive Moscow of much-needed revenues.

Russia has been politically and economically isolated since its invasion began, but European energy needs and historically high prices of natural gas have ensured a daily windfall from the West.

At the start of March, Russia was still earning more than $750 million per day from natural gas sales to Europe, according to Bloomberg data. The EU was also still purchasing more than $250 million per day in Russian oil at the start of last month, despite the invasion and a deluge of fresh sanctions.

President Volodymyr Zelensky and his top officials and advisers have repeatedly demanded an embargo on all Russian energy imports—something President Joe Biden committed the U.S. to at the start of March.

Oleg Ustenko, an economic adviser to Zelensky, told Newsweek last month that cutting off Russian energy revenues would "change the rules of the game."

Ustenko dismissed German and other European concerns about the economic impact. "In the long run, it's going to have only positive effects," he said.

This week, Kyiv Mayor Vitali Klitschko said at an EU meeting that every euro sent to Russia is covered in "Ukrainian people's blood."

4/6/22 5:10 a.m. ET: This article has been updated to include comments from the Slovenian foreign ministry.