Ukraine & Gas: What Germany Does Next ...

These are extraordinary times.  Some weeks ago I was finding it hard to believe German politicians really understood how their energy economy worked when they blithely approved their initial wave of ‘anti-Russian’ measures – rearming themselves, “suspending” Nord Stream 2, rowing back on decommissioning coal plants etc etc – and that Putin probably misjudged, i.e. badly underestimated, their ignorance, to his cost.   Even the economy minister, a Green, lined up behind the coal decision and initially thought they might be able to throw their nuclear closures programme into reverse.     

Well, his civil servants disabused him of that one in a hurry – and probably several others of his green fantasies, like *we don’t really need fossil fuels at all*.  Before the Bucha footage hit the meejah, it all rather looked as though Germany and France were quietly backsliding towards self-interested appeasement of Putin.  National self interest: it’s what politicians are for.

Then Bucha.  Now the cry goes up again: stop buying Russian coal (easy) / oil (bit more difficult) / gas (bloody difficult!).  Now obviously some of these cries are from quarters, e.g. USA, that would be little affected.  Others come from deeply ignorant greens on the one hand, and outright warmongers on the other – Guardian Newspaper, this means you.  (Probably well-represented in both categories, actually.)  But yet others seem to be from the German populace at large.  Initially their newly-educated politicians were in “Easy, tiger…” mode; but now the cry seems fairly widespread, and people are seriously asking: could Germany really do this?  Well, that’s indeed a serious question on a serious subject: and some apparently intelligent people are saying ‘yes’.

Here’s where the difficulty starts when trying to figure out what’s going on.  There is definitely a ‘war’ party, as well as an utterly naïve green faction, but let’s put them to one side.  Do the apparently more sober boycott advocates mean:

1. … but we know it’ll be very difficult, to be phased over 3-4 years  – ?
2.  Do it now: we know it’ll be catastrophic for the German economy & people, but it’s a price we must pay  – ?
3.  Do it now: we think there are clever ways of doing this, albeit at some cost, but no worse than (e.g.) covid lockdown or re-unification of East Germany  – ?

There are probably folks to be found in each category.  For what it’s worth, my assessment of these three lines is as follows.

1.  Yes, even 3-4 years won’t be at all cost-free, neither for Germany nor for its EU brethren (nor indeed us in the UK, as gas prices will soar).  But yes, at that cost, it’s doable.  PS, Germany had better look out for the interests of several other EU countries, for whom the hit may be worse.  They’ll certainly be invited to pay up in support, via some euro-mechanism or other.

2.  ‘Catastrophic’ is putting it mildly for the outcome of turning off the Russian gas prior to next winter.  And in the longer term, as noted here before, Germany’s natural energy resources beyond coal & lignite are very meagre – not a fraction of the wind potential that we enjoy, and not much sun to speak of.  Plus, of course, Merkel purposefully omitted to build any LNG import infrastructure, as we’ve noted oft before.

3.  Of course one should always be as clever as possible; and maybe my imagination is lacking: but I can’t see anything other than some really obvious, and somewhat limited mitigants for the pain, certainly if next winter is cold, but also economic pain extending many more years than the covid-related hit.

Can Germany take such a hit?  Can we?  Well, “there’s a great deal of ruin in a nation“, as the EU clearly forgot when it came to Brexit, assuming as they did that the UK couldn’t do anything other than roll over.  But, of course, it applies symmetrically to Russia, which may be able to manage with even heavy sanctions for quite a while: (they outlasted Hitler, didn’t they?) – a topic we’ll return to next week.

If indeed Germany does propose to don a genuinely painful hairshirt in defence of Ukraine, the internal consequences will be extremely severe, and lasting.  And the knock-on won’t be a joke either – particularly for Eastern Europe (except, ahem, Hungary … unless Germany takes steps to block them off, too) but without doubt hurting everyone else in Europe, including ourselves.  For us, it will mostly be via price, as everyone bids into a much diminished gas supply, which can’t leak out via cargo-laundering as oil can.  But the price pain will be quite bad enough.

Later next week, we’ll turn to how things would play out in Russia following a doomsday oil & gas boycott.

ND