Why Hasn’t United States, EU, Other Countries Implemented A 10% Reparation Tax On Oil & Gas Exports From Russia To Pay Reparations To Ukraine And Other Countries?

Why Hasn’t United States, EU, Other Countries Implemented A 10% Reparation Tax On Oil & Gas Exports From Russia To Pay Reparations To Ukraine, Hungary, Moldova, Poland, Romania, Slovakia Among Other Countries?  

If Supporters Don’t Want A Weak State, A Poor State, Then Focus Now On Funding The Reconstruction Of Ukraine. 

The More Money The Russia Federation Sees In The Reparation Account- Which They 100% Fund, The Less Attractive May Be To Destroy The Infrastructure Of Ukraine. 

Due to decisions since 24 February 2022 by the armed forces of the Russian Federation, the cost to reconstruct Ukraine will exceed US$100 billion and could reach US$500 billion.   

The cost of repairing, renovating, reconstructing apartment buildings, single family homes, commercial buildings, electrical wiring, sewer systems, water systems, gas pipelines, roads, bridges, railroads (likely resulting in a change from Ukraine’s existing Russian gauge track to a more widely used European gauge) and railroad stock (locomotives, passenger cars, freight cars).  Many structures were designed and constructed in the 1940’s through 2000’s.  But, this is 2022 and a 200-unit apartment building with two-bedrooms, one or two-bathrooms, built 40 years ago will be costly because what tenants required then is not what tenants require today; what government permits were required then are not what government permits are required today.    

There will be required billions of dollars more to reimburse those countries (Hungary, Moldova, Poland, Romania, Slovakia), whose borders welcomed more than four million refugees from Ukraine- and did so within five weeks.  For perspective, Ukraine’s pre-24 February 2022 population was approximately 44 million.   

Other creditors will be Canada, Japan, United Kingdom, United States, and European Union (EU) members who have contributed tens of billions directly and indirectly to defend Ukraine and assist Ukraine- and whose taxpayers will be asked to do so for perhaps years.  If politicians have a source to obtain reimbursement, they will find politically beneficial to require the Biden-Harris Administration (2021- ) to use every commercial, economic, and political means to obtain the funds. 

On 24 February 2022, as the first bombs, missiles, and rockets impacted the territory of Ukraine, there was approximately US$340 billion in financial institution accounts located outside of the Russian Federation controlled by the Central Bank of the Russian Federation.  Those funds have been frozen by the individual jurisdictions. 

New York, New York-based Bloomberg Economics projects the Russian Federation will earn approximately US$321 billion from energy exports for 2022, an increase of more than 33% compared to 2021.  There may also be a record current-account surplus that the Washington DC-based Institute of International Finance (IIF) projects could be US$240 billion. 

Implementing a 10% Reparation Tax upon energy exports from the Russian Federation might make more palatable for countries including China, Hungary, India, Slovenia, and Turkey among others to continue their imports of energy products from the Russian Federation- and leave those governments with creating justification for continuing with imports if they also refuse to collect and distribute the 10% Reparation Tax. 

The 10% Reparation Tax would be collected by the purchaser- and be calculated using the day-of-contract global market pricing for the energy product.  For example, if the price of a barrel of oil on the global marketplace is US$100.00, and the Russian Federation sells the barrel of oil at a discount, US$70.00, the 10% Reparation Tax required to be paid by the purchaser would be US$10.00.  So whether the purchaser paid the Russian Federation market rate or a discounted rate, the 10% Reparation Tax would apply and the purchaser would then within five (5) business days remit the entirety to an account established on behalf of the government of Ukraine. 

Bloomberg News
New York, New York
1 April 2022

Putin May Collect $321 Billion Windfall If Oil and Gas Keep Flowing
Goldman, IIF expect record current-account surplus for Russia
Embargo on energy exports can tip economy into deeper crisis
Oil and gas account for about half of Russia’s exports

Russia’s economy has staggered through the first full month of the war with Ukraine but it may yet emerge with a sparkling balance sheet if some of its biggest trade partners don’t turn off the tap on its exports of energy. 

For all the hardships visited on consumers at home and the financial chokehold put on the government from abroad, Bloomberg Economics expects Russia will earn nearly $321 billion from energy exports this year, an increase of more than a third from 2021. It’s also on track for a record current-account surplus that the Institute of International Finance says may reach as high as $240 billion. 

“The single biggest driver of Russia’s current account surplus continues to look solid,” IIF economists led by Robin Brooks said in a report. “With current sanctions in place, substantial inflows of hard currency into Russia look set to continue.” 

The calculus may change completely, however, in case of an embargo on energy sales. And even without it, Russia’s oil exports and output are already falling, with the International Energy Agency predicting it may lose nearly a quarter of its crude production this month.

Many of the country’s traditional customers are also looking elsewhere and choosing not to sign new contracts for Russian supplies amid widespread condemnation of President Vladimir Putin’s aggression. Others like India are getting steep discounts.  

The invasion of Ukraine has shocked Germany and its European Union allies into a radical shift in energy policy, and the bloc is rushing to cut its dependence on Russia. For now, Europe’s largest economy opposes sanctions or political pressure that would prompt a full energy embargo. Only a handful of nations -- including the U.S. and the U.K. -- have imposed explicit bans on imports from Russia. 

Oil and gas account for about half of Russia’s exports and contributed around 40% to last year’s budget revenue. 

What Bloomberg Economics Says... “Hydrocarbon revenue is a lifeline for Russia’s economy, helping to damp the impact of otherwise severe sanctions and stave off a balance-of-payments crisis. But even without an energy embargo, inflation is soaring and a deep recession looms.” --Scott Johnson. 

Still, the combination of a steep ruble depreciation and a higher dollar price for oil will generate an extra 8.5 trillion rubles ($103 billion) in budget revenue this year, according to TS Lombard. 

“The Finance Ministry will use some of it to cushion the blow but cautiously, not to spark inflation further,” said Madina Khrustaleva, an analyst at TS Lombard in London. “It seems that all these sanctions will destroy the non-energy part of the economy. Russia will depend on energy even more.” 

Although the showdown over Ukraine has rattled energy shipments, the shock to imports and domestic demand will be so severe that the current account, the broadest measure of trade and services, may hit a new historical high after last year’s record $120 billion. 

Goldman Sachs Group Inc., whose upward revision for the current-account surplus this year puts it at $205 billion, says it may be enough for the Bank of Russia to meet the private sector’s demand for foreign exchange and allow it eventually to loosen capital controls.  

With Russian consumers already caught in a barrage of shocks from inflation to a hollowing out of incomes, Goldman economists predict a 20% collapse in imports this year, double the expected decline in exports.  

A healthy balance sheet won’t save Russia from a deep recession, but it’s helping sustain government spending at a time when the government has no access to international capital markets. TS Lombard analysts said the ruble’s exchange rate is effectively backed by current inflows now that sanctions froze much of the central bank’s currency reserves. 

Russia’s ability to sell oil and gas abroad may be the only thing keeping the economy from descending into an even worse financial meltdown.  

The IIF, an association of the world’s biggest financial institutions, said an energy embargo by the EU, the U.K. and the U.S. would lead to a contraction of more than 20% in output and may cost Russia as much as $300 billion in export receipts, depending on price swings.