As rationing looms, Germany faces the madness of its Russian ties


Even with accelerated planning permissions, it will take at least two years to build the required LNG facilities and associated infrastructure, not to mention the additional vessels needed to transport huge additional quantities of product. Floating LNG processing plants will only partially fill the void.

As it stands, the immediate peril to European supplies appears to have receded, at least for now. The Kremlin had threatened to completely cut off gas unless paid in rubles.

Most European buyers are forced to pay in Euros and fear that paying in Russian currency will violate the spirit, if not the letter, of the sanctions.

For Russia, euro payments have become almost completely useless. Even though they are accessible in the Russian banking system, they may not be redeemable. For Putin, it is as if the gas was sold for free.

Yet if Europeans are forced to buy rubles to fund their purchases, it helps prop up the Russian currency and becomes an even more powerful source of funds to pay off Putin’s hubris.

The situation is almost far-fetched, because it is in no way a question of a unilateral dependence; Putin is as dependent on Europe as Europe is on him. Threatening to end co-dependency kills both parties equally. If the parasite kills its host, it also dies.

Putin assumed he had Europe over a barrel, that Germany‘s dependence on its gas ensured its effective silence on its invasion.

Instead, it has turned into an international pariah that this year or next will end up losing the only market it has for its gas. Alternative pipelines to ship the gas to China are not expected to be completed until the end of the decade.

However, the pain will be strong enough for the industrial hearts of the Rhine. German modeling of the economic impact of the overnight loss of access to Russian gas ranges from 0.5pc of GDP to 6pc.

The range is so wide because Germany has never suffered a shock like this before, making it difficult to know what the effect might be and how long the economy might take to adjust. But being German, they already have detailed contingency plans in place.

In the event of a complete ban – or a German decision to extend sanctions to the purchase of Russian oil and gas – there would inevitably be rationing by next winter.

Initially, households and critical infrastructure would be protected, with industry bearing the brunt of shortages.

Businesses would be targeted based on their economic importance and supply chain, giving the impression of being in a wartime economy, with short working weeks and, in some cases, complete shutdowns. factories.

Households may also face restrictions on the temperature to which they are allowed to heat their homes, a practice that was quite widespread after the oil shocks of the 1970s.

Fortunately, the UK is not as tied to Russian energy supplies as it is to the rest of Europe. Hot at a trot, the Russian Gazprom once had its eyes set on a majority stake in Centrica, owner of the British Gas franchise. Yet somehow this was deterred.

I remember writing at the time what a disaster it would have been; even then Russia seemed perfectly happy to use the stranglehold it had over the gas supply for political purposes, which makes it all the more remarkable that Germany thinks it is perfectly safe to entrust the future of its unrivaled manufacturing sector to such a deceitful supplier.

There is at least one aspect of energy policy that British ministers have successfully mastered. The bad news is that it offers no protection against high oil and gas prices.

As a large net importer of energy, we will pay through the nose for Putin’s transgressions alongside everyone else. Our energy insecurity is in many ways as serious as in the rest of Europe.

Nuclear power is the solution favored by the British government. Unfortunately, it’s neither immediate – nuclear power plants take a long time to plan and build – nor cheap.

Nuclear is almost always a much more expensive form of power generation than almost any conceivable alternative. The era of abundant and inexpensive energy is over. Get used to it.


About Author

Comments are closed.