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Sorry Zelenskyy, Germany’s hooked on that Russian oil and gas

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Ukrainian President Volodymr Zelenskyy wants Germany to do something about its addiction to Russian energy that’s funnelling billions to the Kremlin while it bombards his cities.

Zelenskyy appealed for help in a scathing 20-minute televised speech to the Bundestag on Thursday, where he spelled out how Germany had ignored warnings about making its economy dependent on Russia.

Kyiv’s concerns were shrugged off with the response: “It’s about the economy, the economy, the economy,” he said.

And indeed, for many German politicians, it is a pocket-book issue.

Germany is by far the biggest EU spender on Russian oil, gas and coal, paying more than €40 billion in 2021; it gets 55 percent of its natural gas, 52 percent of its hard coal and 34 percent of its oil from Russia. In January alone, Germany sent €2.6 billion for oil and gas imports to Russia.

Saying no to that energy would be painful, politicians claim. After all, Germany needs the energy not only for cars and household heating but to power giant sectors like chemicals, which produce the feed materials for huge swathes of industry.

Robert Habeck, the Green vice chancellor and economy and climate minister, warned: “If we flip the switch immediately, there will be supply shortages, even supply stops, mass unemployment, poverty.”

He estimated that Germany could halt coal imports almost immediately and switch to international markets for oil by the end of the year, but quickly ending gas imports — delivered to Germany by overland and undersea pipelines — would be very difficult.

His boss, Chancellor Olaf Scholz, has called Russian energy “of essential importance” for the Continent’s economy.

Changing views

But public and political opinion is shifting, and there are also questions over the scale of the hit to Germany if it halts Russian energy imports.

A paper by the German National Academy of Sciences Leopoldina said that a short-term halt in the supply of Russian gas would be “manageable.”

Other economic pundits say it would slash more than 5 percent off gross domestic product, which would make it the second-sharpest downturn since World War II. 

In contrast, a report by the Kiel Institute for the World Economy argued that Germany might receive a small economic boost if it were to stop importing Russian gas. 

Importantly, neither the Leopoldina paper, which focused on ways of substituting non-Russian energy sources, nor the government have backed their assertions with hard figures. 

Despite the economic uncertainty, the scenes of devastation in Ukraine are shifting public opinion. Surveys last week found around half of Germans support an embargo.

Germany’s federal environment agency said that turning down thermostats by 2 degrees would reduce Russian gas imports by 7 percent and that speed limits could help reduce fuel demand. Newspaper headlines over the weekend included “Saving energy against Putin” and “Can we hurt Putin by working from home?” while pro-Ukraine protests have featured slogans like “Freeze for free Ukraine” and “Pullis gegen Putin,” which means “sweaters against Putin.”

German Greenpeace has started campaigning for a series of instant measures, including car-free Sundays, that it says would slash oil imports from Russia by a third. 

Politicians sense the change.

Friedrich Merz, head of the opposition Christian Democratic Union, wants a rethink.

“We are of the opinion that it is now time to take a further step and to stop further gas purchases from the Nord Stream 1 pipeline,” he said last week.

Joschka Fischer, a former Green foreign minister, called Germany’s reliance on Russia “a strategic mistake,” and wondered: “Is it really too expensive to embargo Russian gas?”

Whatever the short-term questions over stopping Russian gas imports, there’s been a sea change in its long-term future.

The German coalition government has ambitious plans for the country to get 80 percent of its electricity from renewables by the end of the decade and to slash its greenhouse gas emissions. Part of that shift was supposed to be helped by switching from coal to less-polluting natural gas — but that’s no longer likely to happen.

Russian President Vladimir Putin “has broken the narrative of natural gas as a bridging technology, the bridge has collapsed. In the short term, this probably means more coal on the electricity market, and in the longer term it means green hydrogen more quickly,” said Climate State Secretary Patrick Graichen.

Looking at the numbers

Most financial market experts think that coming off the Russian energy hook will be very costly. Even without a full ban on gas, Germany’s key ZEW economic sentiment indicators this week posted the sharpest downturn on record. 

“A recession is becoming more and more likely,” said ZEW President Achim Wambach. “The worsened outlook affects practically all sectors of the German economy, but especially the energy-intensive sectors and the financial sector.”

The German Economic Institute called a Russian gas ban an incalculable risk.

“We have chosen the word ‘incalculable’ quite deliberately,” said Thilo Schäfer, the author of the paper. “Estimates on the impact of Russian gas ban hinge on a slew of assumptions and tinkering with just one of them can have significant impact on the bottom line.”

Schäfer suggested that some of the more optimistic projections may be underestimating the disruption to value chains. “The chemical industry products, for instance, are a core component for many other sectors,” he said.

Similarly, Jari Stehn, chief European economist at Goldman Sachs, agreed it would be “harder to gauge” the scale of knock-on effects. Other sources of uncertainty include potential fiscal measures to cushion the effect of a ban on consumers and estimates on how efficiently gas supplies can be substituted, he said.  

“In addition, economists need to include assumption on the impact of higher energy prices on overall inflation and consumer spending,” he said. 

But those calculations get short shrift from Zelenskyy.

“I am grateful to the politicians … who know that an embargo on trade with Russia is needed. On imports of everything that sponsors this war,” he told German MPs.

“Help us stop this war,” he said.

Laurenz Gehrke contributed reporting from Berlin.

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