How Germany became one of the main supporters of the EU embargo on Russian oil

Until recently, Germany relied on Russia to supply a third of its oil. It nevertheless states that it is determined to zero its imports from Russian companies by the end of the year at the latest – regardless of the European embargo.

Wishful thinking; Expensive risk? Estimates are divided, but the government has relied heavily on this detoxification for much of its policy toward Moscow, despite the financial costs involved.

“I’m ashamed that we’re still buying energy from Russia,” said Economy Minister Robert Habeck yesterday, re-engaging in self-criticism similar to those used by the government’s “greens”. However, he was quick to point out that German society and the German economy support sanctions against Russia on a daily basis – paying for energy more expensively.

A few weeks ago, Germany was part of the European Union’s skeptical bloc, which feared that banning Russian oil imports would spark a dangerous spiral with unpredictable consequences for the economy and be interpreted as a serious challenge by the Kremlin. “We could not last a month without Russian oil,” said Foreign Minister Annalena Berbock at the start of the war. The deteriorating situation in Ukraine, however, has prompted Berlin to seek solutions even to a possible embargo, and Mr Habek’s tour of other oil-producing countries has paid off.

Today, the main problem is summed up in the place name Svend: a few kilometers away from Berlin, on the border with Poland, the refinery in the area belongs to Rosneft. It is directly connected to the “Filia” pipeline, through which it receives 12 million tons of crude oil annually.

It fuels the wider region of northeastern Germany, including Berlin, as well as eastern Poland, and employs 1,200 people. The states of the region are asking for help, alternative routes and of course financial support, in case the transport of oil from the port of Rostock by tanker affects the environment and of course the tourist traffic in the region. Most importantly, however, they ask for guarantees for the employees at the facility.

The federal government has made every effort to secure alternative suppliers and seems to have reached the point where it can secure a European embargo on Russian oil – with the secret hope that until it is implemented, there may be no reason its implementation.

Politically, and at the level of public opinion, there is widespread support for this sanction within Germany. Only the Alternative for Germany (AfD) and the Left have disagreed with the European embargo.

But the debate over the possible consequences has rather diminished. The Ministry of Economy presented in a rough plan a plan to deal with the interruption of the import of Russian oil from the industry.

The plan provides further loans and guarantees to set up energy companies and support them in the face of rising prices, while the government reserves the right to take control of refineries such as Svend in order to ensure the smoothest possible supply. After all, Rosneft has made it clear that it is not interested in managing the refinery if it does not process exclusively Russian oil.

The German state could also acquire shares in companies, as it did in 2018, when the state-owned investment bank KfW bought 20% of the 50Hertz power grid operator to protect it from a Chinese takeover, while recently strengthening the importer of natural gas. Uniper gas to deal with the fluid situation in the energy market. The final package of the “emergency” has not yet been announced.

But the big headache seems to be mainly about the possibility of Russian energy companies suddenly shutting off the gas tap, from which German dependence is much more important and is not expected to be zeroed before mid-2024.

A few days ago, Reuters quoted four officials as saying that Germany had reached the level of sanctions it could support without endangering its economy – and society – and would like to draw a “red line” soon. “.

At the same time, the government is under pressure from industry, especially companies with strong ties to Russia, not to impose an embargo on gas. If Moscow cut off gas supplies immediately, or the EU imposed an embargo, the consequences for the German economy would be comparable to those of the 2008 financial crisis and the coronavirus pandemic; and the social consequences would be even more serious, the institute said. Macroeconomics and Competitiveness Research of the Hans Beckler Foundation and warns that there is a possibility that the Russian economy will not eat much, as Russian energy products will be sold at comparable or higher prices outside Europe.

But the oil embargo is very different and is considered practically more manageable for Germany. Asked by APE-MPE, the Association of German Industries (BDI) said it supported the government and the EU in their decision to block Russian oil.

“German industrialists are prepared,” said Siegfried Rusvurm, president of the Association. “. With its agreement to ban oil imports from Russia, the EU is sending a “clear message of unity to the Russian aggressor”. The key, however, warns Mr Rusvurm, is to avoid distorting competition within the EU when designing the embargo.

Asked if German companies can cope with this development, the head of the BDI assures that the industries have been preparing for this for weeks, while acknowledging that even so, this sanction remains a very drastic step. At the same time, he predicts that the oil embargo will definitely hit Russia hard, as the sale of oil is a major source of income for the country.

As far as German households are concerned, Robert Hubeck has been trying for weeks to prepare citizens for the risk of supply delays, but especially for the realistic possibility of further price spikes. Especially in the eastern part of the country, which is served by the Svend refinery, the problem will be more serious, said the Minister of Economy, but he said he was optimistic, as German imports of Russian oil have been reduced these days from 35% to 12%.

“We have created a situation in which Germany can support the oil embargo,” Mr Habeck said, attributing the higher prices to service stations to the fact that the big companies (BP, Shell) have already withdrawn from Russia. “If the oil embargo is imposed, prices will initially rise further,” he acknowledged.

For consumers, this means more expensive travel by car, more expensive heating and more expensive goods that need energy to be produced. In this context, the government is already implementing mitigation measures: From 1 June, the monthly ticket for all MMMs across the country costs 9 euros (when, for example, a simple metro ride to Berlin normally costs 3 euros), while the fuel tax was reduced by 35 cents for petrol and by 15 cents for diesel. The specific measures are valid until August 31, but the possibility of their extension or adjustment remains open.

“The market will be under pressure at first, but then it will calm down relatively quickly,” Commerzbank analyst Ulrich Loichtmann said in an interview with Wirtschaftswoche. “The oil market is global, so oil can be replaced relatively quickly. And as large consumers, such as China and India, continue to buy from Russia even in the event of an EU embargo, the international price will soon decrease again “, explains the economist. But the gas embargo would be much more unbearable, especially if liquefied natural gas (LNG) terminals designed in the North and Baltic Seas have not been set up in the meantime. Suffice it to recall that one in two German households uses Russian gas.

In any case, the German government will be called upon to carry out a particularly demanding exercise of balance: on the one hand, the political and strategic need for “punishment” of Moscow and the leadership role that Germany and Ukraine expect from its partners, on the other. the increased demands of its economy, on which, of course, the social balance also depends. In the background are plans for a strong shift to renewable energy, a key goal of the ruling coalition with a “green” sign.

Source: AMPE