Germany has condemned Russia’s invasion of Ukraine. It has increased its defense budget and sent weapons to the Ukrainian military. It has launched a barrage of sanctions against Russia and some of its billionaires. This week, in Hamburg, German authorities impounded the superyacht owned by the family of Alisher Usmanov, the Russian oligarch industrialist closely linked to President Vladimir Putin.
Yet Germany’s role as the biggest European Union buyer of Russian oil and natural gas continues largely unhindered, effectively making it the EU’s No. 1 financier of Mr. Putin’s nasty war and slaughterhouse for civilians. Germany’s reliance on Russian energy explains why the coalition government, led by Chancellor Olaf Scholz, has resisted cutting off Russian oil and gas; he knows that doing so would plunge the EU’s biggest economy into a debilitating recession – and turn off the lights and potentially his political career too.
How did Germany become this overdependent on Russian energy?
While former chancellor Gerhard Schroeder has been described as one of Mr. Putin’s useful idiots on the energy front, he was his successor, Angela Merkel, the chancellor from 2005 to the end of last year, who took Mr. Schroeder’s Putin-friendly stand and intensified it.
Ms. Merkel has kept a low profile since she went into retirement, reportedly spending her time writing her memoirs. She broke her silence earlier this month to insist that she “stands by” her decision to block Ukraine’s attempt to join NATO at the military alliance’s Bucharest summit in 2008. She issued her statement the day after Ukrainian President Volodymyr Zelensky suggested that his country was under seat as a direct result of that decision, one that was supported by then French president Nicolas Sarkozy.
Ms. Merkel offered no apology for pursuing the disastrous policy of appeasing Mr. Putin by taking as much of his oil and gas that was on offer. Germany’s energy risks are the highest in the EU, since it is the country most dependent on Russian oil and gas. The prices for both commodities began to surge even before the war started on Feb. 24. As a result, German inflation, at 7.3 per cent in March, reached its highest level in more than 40 years.
For Germany, the only thing worse than financing Mr. Putin’s war by paying record or near-record prices for the Russian hydrocarbons is not paying for them at all. The Russian exports could disappear if Mr. Putin retaliates against the EU sanctions by turning off the taps. Already, he is insisting that payments be made in rubles, not euros or dollars; Germany and other EU countries consider ruble payments a violation of the contract terms.
Germany’s coddling of Mr. Putin began in earnest under Mr. Schroeder, the Social Democrat chancellor from 1998 to 2005. He became a friend of Mr. Putin and, in a TV interview in 2004, referred to Mr. Putin as a “flawless democrat .” His affection for Russia in general and Mr. Putin in particular perplexed some European and German opposition leaders, though a few political strategists suggested his stand was merely an intensified version of New Ostpolitik – German for New Eastern Policy. The policy, which started in the 1960s, well before the Cold War ended, argued that forging greater economic and political ties with Russia would create greater continental security by moving Russia into the European tent.
Mr. Schroeder added a strong commercial element to the policy by setting up Germany as the top client of Gazprom PJSC, the Kremlin-controlled gas giant that is the world’s biggest gas exporter. He was one of the main champions of the first Nord Stream pipeline that delivered gas directly from Russia to Germany, bypassing Ukraine.
Within weeks of his election defeat in 2005, he became chairman of the Nord Stream shareholder committee – compelling evidence that he was one of the Kremlin’s favored European allies and lobbyists. There is no way he would have been appointed without Mr. Putin’s approval.
Since then, Mr. Schroeder has firmly embedded himself in Russia’s massive hydrocarbons industry. He is the chairman of Rosneft Oil Company, the state-controlled oil giant and, before the war started, was nominated to the board of Gazprom. He is supposed to start that position in June though is under political pressure to go nowhere near the company.
Ms. Merkel adopted a more skeptical and wary stand toward Mr. Putin, but ultimately allowed herself to get sucked into Mr. Putin’s great geo-economic energy game. She backed the construction of Nord Stream 2, the twinning of the first Nord Stream pipeline that would double Russia’s gas export capacity to Germany (the pipeline is fully built but Mr. Scholz canceled its certification process when the war started).
Crucially, in 2011, right after the Fukushima nuclear catastrophe in Japan, she endorsed Mr. Schroeder’s decision to close all of Germany’s nuclear generating plants when she could have easily overturned it – she had been highly critical of the former chancellor’s move. She ignored warnings from the West, notably the Americans, that getting rid of the plants – the last three reactors are to close this year – would make Germany dangerously relying on Russian gas, oil and coal. They were right.
Today, some 40 per cent of Germany’s gas comes from Russia, imports that cost it nearly US$1-billion a week. Russia also supplies about a third of Germany’s oil and half of its coal. There is no denying that the hydrocarbon sales directly finance Russia’s war against Ukraine. In 2021, about 35 per cent of Russia’s budget income came from oil and gas sales, according to the European Center for Economic Reform.
Germany is trying hard to wean itself off Russian hydrocarbons, but given its outsized dependence on the fuels, that process will take many years. But it will happen, at great cost. In the meantime, Germany is both economic abettor of the war and victim of the astonishingly bad decisions that made it dependent on Mr. Putin’s energy exports. Mr. Schroeder deserves some of the blame, Ms. Merkel even more. The war will be instrumental in reassessing her oft-praised role as Europe’s liberal economic and democratic star.
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