Measures to stop financing Russian aggression

Move by global trading houses to reduce crude and fuel purchases from Russian oil companies adds force to arguments made by LBS’ Professor Portes

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The financial and economic sanctions so far imposed on Russia to force it to end its invasion of Ukraine have yet to have the desired impact, so argues London Business School’s Professor Richard Portes. In the article, Economics and politics of measures to stop financing Russian aggression against Ukraine, Professor Portes joined with Eric Chaney, Economic Advisor, Institut Montaigne; Christian Gollier, Director, Toulouse School of Economics, and Thomas Philippon, Max L. Heine Professor of Finance, NYU Stern School of Business and CEPR Research Affiliate, to argue that cutting off the financing of the Russian aggression is essential, and requires immediately banning imports of Russian oil and taxing imports of Russian gas, while cushioning the shock of these measures on households, especially those with low incomes.

The article, which subsequently appeared in the Centre for Economic Policy Research (CEPR) policy portal,, argued that despite being subject to financial sanctions, the Russian government remains supplied with foreign currency by sales of fossil fuels. In particular, EU imports bring about €650 million every day to Russia. “As French European Affairs Minister Clément Beaune has said, Europe is helping to fund the Russian war,” states the article.

The article, which was signed by Richard Portes, LBS Professor Hélène Rey, and more than 500 other leading academics from around the world, make the further point that in addition to the ten measures put forward by the International Energy Agency, there are three measures that ought to be enforced immediately by EU members, in order to cut off the financing of the war of terror waged by Russia. These are as follows:

1. Complete ban on Russian oil imports
Europe imports about 4mb/d from Russia. It is possible to do without it because there are significant capacity margins outside Russia. Without a supply and demand response, a fall in global oil supply equivalent to EU imports could raise the price per barrel, currently around $100, to as much as $175, according to a study by Goldman Sachs (Deutsche Bank estimate $140, if no alternative crude oil supplies emerge). Taking into account the drop in demand and the increase in supply outside Russia, however, the increase would be much more moderate. In some European countries, the embargo could cause difficulties that will have to be managed by European solidarity.

2. A tax on Russian gas imports, proceeds allocated to Ukrainians
Unlike oil, whose market is global, the gas market is local and supply is hardly substitutable in the short term. A total embargo on Russian gas imports is unrealistic in the short term, given the level of dependence of some countries. A temporary tax on Russian gas imports would reduce demand and the rents paid to Russian suppliers. At the horizon of next winter, demand would be reduced and non-Russian supply increased. Thus, the price increase would not benefit Russian suppliers, whose income would be reduced.

The levy is amply justified by the massively negative financial externalities for Europe caused by the war, if only for the imperative welcoming of refugees. Its proceeds would be allocated exclusively to a solidarity fund with the Republic of Ukraine and Ukrainian refugees.

3. Cushion the shock on low incomes
The effects of the increase in oil, gas, and therefore electricity prices are proportionally greater for low-income households. Reducing fuel taxes would have the opposite effect to that intended, since it would not reduce demand and would keep Russian exporters' income intact. To maintain the price signal and the reduction in demand it entails without increasing social inequalities requires temporary fiscal transfers to low-income households.

Strongly reducing Russian fossil fuel imports is a political and moral necessity, but also an economic and ecological one. On the one hand, Russia has demonstrated that it is not a reliable supplier. On the other hand, the imperative of decarbonising European economies requires drastically reducing dependence on fossil fuels. Now is the time to complement long-term policies with immediate action.

Richard Portes was more recently interviewed by Times Radio’s Dominic O’Connell to discuss the likely impacts of S&P Global placing Russia in selective default.