Vladimir Putin’s latest grandstanding on the international stage is leading Germany to brace for a potential swift end to trading with its largest energy supplier.
The country’s economic affairs minister, Robert Habeck, triggered the first phase of an emergency law on Wednesday to address major energy shortages, a serious concern if Germany is cut off from Russian gas. Keep your kettle use to a minimum, he advised the public.
Counting Down the Kilowatt Hours
In retaliation for the kitchen sink’s worth of Western sanctions placed on Russia, Putin is demanding the EU and US pay for gas imports in rubles, which would help prop up the value of his country’s beleaguered currency. Putin’s demand would violate current agreements, which stipulate payments in dollars or euros. The G7, of which Germany is a member, rejected Putin’s proposal earlier this week, and German Finance Minister Christian Lindner told CNBC on Monday his country was “completely against any kind of blackmailing.”
“Either Europe pays in rubles in order to keep the lights on and the heat on, or Russia may get the excuse it could potentially be looking for to cut off energy supplies to Europe in a worst-case scenario,” Jason Bordoff, director of Columbia University’s Center on Global Energy Policy, told Marketplace. That would be tough on Germany, which last year sourced 34% of its oil, 55% of its natural gas, and 26% of its coal from Russia:
- Habeck’s order led to the formation of a crisis committee of government officials, regulators, and private-sector members to assess Germany’s energy supply. He also asked businesses and households to reduce their energy consumption with the reminder that “every kilowatt counts.”
- If the situation becomes critical, German regulators could ration gas, and industry is first in line for cuts. That poses a strong risk to Germany’s manufacturing-led export economy, which was equal to 46% of GDP in 2019. Austria also activated the first stage of its own emergency plan Wednesday.
Kicking the Habit: Poland said Wednesday it will end Russian gas imports by year’s end, but Germany previously said it won’t be able to wean itself off Russian natural gas until 2024.
It’s All Connected: Like much of the rest of the world, Germany is dealing with unusually high inflation, which the European Central Bank said Wednesday rose to a 40-year high of 7.6%. The chief culprit? A 39.5% increase in energy prices from a year ago.