Ukrainian civilians are slaughtered in the streets of Bucha while Germany still debates whether an embargo on Russian energy imports is too high a price to pay to stop Vladimir Putin. It’s an untenable situation.
As usual, Berlin is dragging its heels and claims to know better than allies and number-crunching advisers: A sudden halt of Russian gas imports would devastate the German economy, the business and political elite argues, and therefore cannot be countenanced.
From a country that for years collectively misread Putin and allowed itself to develop a disastrous dependency on Russian energy, this is hard to accept. Today, Moscow provides more than one-quarter of Germany’s primary energy consumption and around 40% of its gas. Surely Germany must accept the consequences of its past blindness, whatever the financial costs?
Allies rich in hydrocarbons or who wisely invested years ago in their energy security can afford to be dogmatic, but in fairness Germany faces quite a predicament. While forgoing Russian coal and oil looks doable quite quickly, going cold turkey on Russian gas would deal a heavy blow to domestic industry — but how bad is a topic of intense debate.
For now, Germany has some breathing space. The European Union is proposing an embargo on coal but not gas. Yet Germany will surely have to wean itself off Russian energy faster than its current timetable of mid-2024, even if Russia elects not to cut Germany off first. Germany cannot continue tacitly funding the Russian war machine. Morals, not just money, must inform its thinking.
I’m sure nobody in the German government wants to keep buying Russian gas. Some 43% of Germans would support an embargo even if this leads to considerably higher prices. The widely read German tabloid Bild is also in favor. Germany’s economy and foreign ministers hail from the Green party and would like nothing better than to abandon fossil fuels, Russian or otherwise, tomorrow. Yet almost without exception, German ministers agree the gas taps can’t be turned off overnight.
The debate has become increasingly fraught in recent days as economists dared suggest an embargo is manageable and would cut national output by less than 3%. Surely that’s not too much to pay for Ukrainian lives?
Displaying rare unity, the government, industry leaders and trade unions pushed back hard, saying a recession might be a great deal worse and both unemployment and inflation would skyrocket. Germany would be committing economic self-sabotage with no guarantee it would hasten an end to the war.
The crux of the problem is that while Germany is scouring the world for alternative gas supplies, these won’t be sufficient to fill a Russian shortfall in the near-term and the required liquified natural gas infrastructure isn’t ready yet. So if Russian gas imports are halted now, Germany would likely face shortages by the winter. Households and social services that rely on gas for heating have priority. Therefore parts of German industry might have to curtail production or shut down.
Chemical producers such as BASF AG are big gas consumers, and the worry is their products are so vital for other industries that any stoppages would rip through Germany’s manufacturing base and European supply chains. These cascading impacts are inherently more difficult for economists to model. Manufacturers would adapt but gas can’t always be substituted in industrial processes.
Furthermore, steel and chemical plants can’t be switched off and on again overnight. Unlike shops and restaurants that reopened the minute Covid restrictions were lifted, the economy could take longer to bounce back.
Germany knows from recent experience the cost of supply chain upheaval: Due to a shortage of semiconductors, barely 3 million cars were manufactured here last year, the fewest since 1975.
The car industry offers one important lesson for German policymakers. Tesla Inc.’s recently opened plant near Berlin took just two years to build: It began construction before receiving all the necessary permits. German bureaucracy shouldn’t impede filling a Russia-sized energy hole. Instead the country must channel Elon Musk-like doggedness to add more wind and solar power, home heat pumps and energy-saving investments.
It’s already come a long way: The much-criticized Nord Stream 2 gas pipeline has been halted and this week the government seized control of a Gazprom PJSC gas storage subsidiary. Meanwhile, Germans have been urged to save energy (municipal swimming pools are joining in the effort, meaning customers face a chillier dip).
There’s more it can do: A cap on Autobahn speeds to curb gasoline consumption is still seen as politically too prickly, while extending the lifespan of Germany’s few remaining nuclear plants is deemed too difficult. Neither would fix a gas shortfall, but showing greater resolve might earn Germany a more sympathetic hearing from Ukraine and NATO allies.
At the very least, it should consider a levy on Russian gas imports, as economists have suggested. This would curb nonessential use, thereby reducing the flow of funds to Moscow. The money collected could help rebuild Ukraine or compensate consumers.
Still, if Bucha doesn’t decisively swing German political opinion, tragically some future atrocity surely will. Better to start preparing to forgo Russian gas entirely now, and do so as if winning a war depended on it.
