- Germany has relied on Russian oil and gas for decades. Now the nation faces a perilous choice.
- German purchases help fund the Ukraine war, but banning Russian energy risks economic disaster.
- As the war continues, Germany is under growing pressure to take a side.
Germany faces escalating pressure to wean itself off Russian energy, but decades of economic and political decisions make a fast decoupling practically impossible.
The US, the UK, and the European Union all moved in tandem last month to sanction Russia's massive energy industry. The punitive measures varied dramatically. The US fully banned Russian oil, natural gas, and coal, while the UK rolled out a plan to stop importing Russian oil by the end of the year. The EU announced a ban only on Russian coal this month and is still mulling whether to target Russia's oil or gas trades.
Germany is one of the biggest holdouts.
"Over the past decades, our dependence on oil, coal, and gas from Russia has been increasing," Chancellor Olaf Scholz said in a March 23 speech to Germany's lower house of parliament, Bloomberg reported. "We will end this dependence as quickly as possible."
The country is heavily reliant on Russian energy, particularly the natural gas that's shipped directly from Russia through the Nord Stream pipeline network. Removing Russian gas from the German economy would immediately slam its manufacturing industry, sharply lift prices for basic commodities, and likely force the country into rationing schemes as the government scrambles to find new suppliers. With millions of dollars flowing from Germany to the Kremlin every day, the pressure is on Scholz to engineer an unprecedented energy pivot.
The alternative is similarly bleak. As Russia's invasion drags on, the West's sanctions don't seem to be working. The ruble has quickly recovered most of the value it lost after the sanctions' announcement, largely padded by steady income from Russia's energy sector. Russia is projected to earn more from its energy exports in 2022 than it did last year.
"We will not persuade anyone to buy our oil and gas," Russian Foreign Minister Sergey Lavrov said on March 10, just days after the West unveiled sanctions targeting the country's energy sector. "If they want to replace it with something, they are welcome. We will have supply markets. We already have them."
Germany is likely to play a major role in fueling a windfall for Russia. Russia supplied nearly one-third of Germany's total energy needs — as well as a solid majority of its natural gas supply — in 2021, according to the German think tank Agora Energiewende. Its purchases of Russian energy commodities are estimated to add roughly $220 million to Russia's balance sheet every day, The New York Times reported on April 6.
A mounting pile of evidence of atrocities in Ukraine has prompted more calls for a full embargo on Russian energy and left Germany with a serious dilemma. Escalating sanctions could starve the Kremlin of the cash needed to continue its invasion but would almost certainly plunge Germany into an economic crisis. But continuing to fund Russia's military grows less accepted by the day.
"All of a sudden the discussion in Germany about whether our economy would grow by 6 percent or just 3 percent in the event of an energy embargo seems petty and insignificant. We resemble a hostage to the Kremlin," Handelsblatt, a German financial newspaper, said.
Germany's energy dilemma began in the 1960s
Germany's reliance on Russian energy was intentional, and it all began with an oil pipeline.
The abundance of Russian oil and gas became apparent in the 1960s, and a partnership between the two countries quickly formed as the then divided Germany manufactured pipeline infrastructure and the then-Soviet Union opened its huge energy trade to Eastern Europe.
The first oil pipeline between the USSR and West Germany, nicknamed the "Friendship Pipeline," began operations in the mid-'60s. The first natural-gas pipeline between the two followed in 1973, the same year the Soviet Union started pumping gas to East Germany.
"This will change our very being," Leonid Brezhnev, then the general secretary of the Soviet Union's governing Communist Party, said in February 1971. "They will change our possibilities, our relationship with all of Europe — and not only with the socialist countries, where we are able to ship gas and oil, but with France, the FRG, Italy."
The friendship was tested during the Cold War. Despite extreme tensions between West Germany and the Soviet Union, pipelines between the two allowed Soviet energy commodities to reach the West and even make their way to the US. As The New York Times reported in October 1973, the energy trade between West Germany and the USSR was "a simpler arrangement" than American companies' proposals to develop gas resources in Siberia.
By the time the Berlin Wall fell in 1989, the Soviet Union had cemented itself as a critical supplier of energy commodities for Germany, the EU, and the West.
Germany's commitment to phase out nuclear energy intensified its dependence on Russia. The German government voted overwhelmingly in 2011 — soon after the Fukushima nuclear meltdowns — to shut down eight nuclear-power plants immediately and phase out the remaining nine plants by 2022.
The Russia-Germany energy partnership was still growing just months before the war in Ukraine began. The Nord Stream 2 pipeline, which was set to double the network's total capacity, was completed in September. Germany froze the certification of the pipeline just before the invasion began in February, but the infrastructure serves as a symbol of just how quickly relations between the two countries have changed.
Natural gas remains the sticking point in sanctioning Russia
Germany has made some major strides toward energy independence since the war began. Efforts to find oil supply elsewhere have cut down the share of Russian oil used by Germany to 25% from 35%, Robert Habeck, Germany's economy minister, said on March 25. The country also halved its imports of Russian coal, and German power plants should be able to fully transition off such coal as early as fall, Habeck added.
But weaning the country off Russia's natural gas remains a tall order. The share of Russian gas imports is expected to drop by 24% by the summer, but fully removing Russia from Germany's gas trade could take until summer 2024, the economy minister said.
German Finance Minister Christian Lindner echoed that forecast on April 4, telling reporters ahead of EU talks in Brussels that Russian natural gas "cannot be substituted in the short term."
"We would inflict more damage on ourselves than on them," he added.
Lindner later rejected an EU embargo on Russian natural gas, instead proposing to ban oil, coal, and gas on separate timelines as the bloc looks for new suppliers.
Germany still hopes to cut Russia out of its energy supply chain, Scholz said on April 8, according to Reuters. Just don't expect a speedy turnaround.
"We are actively working to get independent from the necessity of importing gas from Russia," Scholz said. "This is, as you may imagine, not that easy because it needs infrastructure that has to be built first."