Scholz believes that Germany should prepare for a possible Russian gas supply cut | International


After Russia made good on its threat to cut off gas supplies to Poland and Bulgaria for their refusal to pay in rubles, fears are growing that other European countries will follow. Germany, Russia’s state-owned Gazprom’s biggest client, could be next. Berlin not only does not rule it out, but the chancellor, Olaf Scholz, believes that the country must be prepared for an eventual closure of the gas tap. “We can only speculate on what decision the Russian government will take, but there is little point in doing so. We must be prepared”, he assured this Thursday in Tokyo, where he is on an official visit.

The cutoff of supply to Poland and Bulgaria, so far the harshest response after the sanctions imposed by the West after the invasion of Ukraine, comes after Russia last month demanded payment in rubles for the hydrocarbons it exports to Europe. At the moment none of the 27 EU countries has agreed to Moscow’s claims, but now several European importers are studying how to apply the mechanism suggested by the Kremlin and if doing so would mean skipping sanctions. The members of the G-7 – in whose presidency Japan will replace Germany next January – agreed not to give in to Russian blackmail and continue to pay in euros or dollars, the currencies that appear in the contracts.

Brussels has warned buyers that converting gas payments into rubles could violate sanctions agreed by the EU, but the mechanism that several of them are studying is highly complex and has sowed confusion among member states. Meanwhile, countries like Germany — but also Austria and Italy — are resisting criticism that they are helping finance Putin’s war with their energy imports. These countries have so far blocked the inclusion of an embargo on Russian oil and gas in EU sanctions packages. Putin’s demand adds more pressure to Brussels’ attempt to maintain a united front against Russia.

The German company Uniper is one of those that has admitted to studying the new system. “We believe that a payment change that complies with the sanctions is possible,” a spokesperson for the company, Gazprom’s largest client, told EL PAÍS. Now Uniper pays in euros, but to an account in Europe. Gazprom intends that it open two accounts in Russia, one in euros and the other in rubles, so that Gazprombank —one of the banking entities not sanctioned, precisely to allow the payment of hydrocarbons— makes the transfer in rubles.

recession risk

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The Scholz government, including the faction of the Greens that are part of the coalition with Social Democrats and Liberals, assures that an immediate cut in the gas supply would plunge the country into a recession and put hundreds of thousands of jobs at risk. The chancellor highlighted in Japan the efforts of Germany to get rid of its energy dependency. The country will be able to do without coal at the end of the summer and oil at the end of the year. But gas, the basis of the powerful German industry, is another matter. “It is a process that takes a long time,” acknowledged the foreign minister. His government estimates that it will continue to need Russian imports until mid-2024. Before the war, Russia supplied 55% of the natural gas Germany consumed; that percentage has already decreased to 35%, according to data from the Ministry of Economy.

The majority of importing companies that are now studying how to change the payment method without violating the sanctions have until the end of May, when they must pay the next invoice, to decide. Uniper claims to be in direct contact with the German government. The Austrian OMV also acknowledges that it is “analyzing Gazprom’s request,” said a spokesman. According to information from Reuters, the Italian ENI is another one that is considering the change.

€9.1 billion from Germany in two months

The Kremlin’s decision on Poland and Bulgaria has fueled speculation about whether it will dare to turn off the tap to much larger clients, such as Germany. Because the dependency is mutual. In the first two months of the war, Germany has paid around 9.1 billion euros to Russia for fossil fuels, according to a study by the Center for Research on Energy and Clean Air (CREA). In total, Russia has earned 63 billion euros from the sale of gas, oil and coal, of which 71% came from the EU.

With Poland and Bulgaria, the Kremlin did not have so much to lose. Between the two, gas deliveries account for barely a quarter of those received by Germany. In addition, both countries had announced that they would not renew the contracts with Gazprom, which expire at the end of the year. They claim they have reservations and alternatives. Poland, for example, can receive gas from Germany through the Yamal pipeline. Sacrificing the goose that lays the golden eggs that is Berlin, on the other hand, is a much riskier bet for the Kremlin.

Many analysts believe that Moscow would not be willing to pay that price. They suspect that the logic of this challenge is not so much economic or legal as playing the game of confusion: the insistence on payments in rubles seeks more to entangle than to strengthen the Russian currency. “Putin wants to fragment European countries and his position towards energy diversification and the general position against Russia,” says Simone Tagliapietra, a researcher specializing in energy policy at the thinktank Bruegel.

The difficult balance between complying with Moscow’s wishes without violating EU sanctions, which explicitly prohibit any transactions with the monetary authority, puts companies in a bind. Opening an account in Gazprombank and paying in euros is legal, but Moscow intends to consider the transaction completed only when the amount in rubles appears in the second account. That transfers the risks to European importers, says researcher Maria Demertzis, from Bruegel, in an analysis published this Thursday. The bank could charge a fee for the transaction, which would be a breach of contract and de facto raise the price of gas, she says.

The German Parliament approves the delivery of heavy weapons to Ukraine

The German Parliament approved this Thursday a motion to guarantee the supply of heavy weapons to Ukraine that reaffirms the decision made by Chancellor Olaf Scholz to start sending tanks to kyiv. The coalition government had been under pressure from its international partners, who were asking it to be more decisive in delivering military aid to Ukraine. Scholz has also been showered with criticism from the conservative opposition and from some members of the ruling coalition parties between Social Democrats, Greens and Liberals. Finally, the parliamentary groups of the tripartite and the Christian Democrats have come together to present a joint motion that obtained 586 votes in favor, 100 against and seven abstentions.
The joint motion has not prevented conservative leader Friedrich Merz from attacking the “weakness” of Scholz’s leadership. “During the crisis the chancellor has avoided or evasively answered the question of whether weapons should be supplied to Ukraine or not,” Merz said in his speech: “That is not prudence, as they are trying to justify. It’s hesitation, it’s procrastination, and it’s fear.” Scholz had justified his refusal to send tanks on the need to prevent an escalation of the war. “We must avoid a third world war,” he said a few days ago.

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