How much would Russian energy sanctions really hurt Germany?

Experts suggest that banning Russian oil and gas would impact the German economy less than the Covid pandemic did.

Robert Habeck, Germany’s energy minister. Photo by Sean Gallup/Getty Images

If Germany bans all imports of Russian fossil fuels the country will face dire consequences, such as mass unemployment and poverty, and people will be unable to heat their homes or drive their cars, warned Robert Habeck, Germany’s economic and energy minister. Ukraine, however, insists that full energy sanctions are vital to end the war. Could Germany cope if Europe opted to cut off Russian oil and gas?

Germany is split. The government argues that energy sanctions would hurt its own population more than they would hurt Vladimir Putin, while a majority of Germans say they would be willing to accept colder rooms and higher energy costs to stop fuelling the war in Ukraine through their bills. One issue that unites many politicians and members of the public, however, is sheer disbelief at how the country became so reliant on Putin’s oil and gas.

The simple answer as to how this state of affairs came about is that during the Merkel years, piped Russian gas was cheaper and more convenient than alternatives, such as importing liquid natural gas from further afield via ships. Many politicians, including Angela Merkel’s former energy minister Sigmar Gabriel, now admit that they were blinded by cheap energy and opportunities for German businesses in Russia.

“Past German governments were obsessed with Russian gas,” says Constantin Zerger from the environmental group DUH. Zerger adds that even the German chancellor, Olaf Scholz, was a supporter of the now suspended Nord Stream 2 gas pipeline running between Russia and Germany, and ignored the country’s ever-increasing dependency on Russian gas.

The German government may, for now at least, be steadfast in its refusal of an energy embargo, but economists are nonetheless busy calculating whether Germany could manage without Russian fossil fuels.

The conclusion? Germany could substitute the hard coal and oil it buys from Russia with supplies from other countries, albeit at higher prices. Gas is a bigger problem. However, Germany could weather an energy embargo in the short term by using more coal (and less gas) to generate electricity, letting gas storage fill up over the summer and by encouraging its public to turn down the thermostat. Such a scenario would lead to a mere 0.5 per cent to 3 per cent decline in GDP, shows analysis by the research group Econtribute. During the pandemic Germany’s GDP declined by 4.5 per cent.

Others believe a full-blown energy embargo is unlikely, even if Germany were to come out in support. Ottmar Edenhofer, the director of the Potsdam Institute for Climate Impact Research, and previously a vocal supporter of imposing full energy sanctions on Russia, considers it unlikely that an embargo would be enforceable at the moment. “But a strong punitive levy on gas and oil imports could at least greatly reduce them in order to become less dependent on Russian energy imports,” he said.

In the longer term, Germany’s energy transition plans aim for the country to reach net-zero greenhouse gas emissions by 2045. The new coalition government has announced a major renewables push to ensure that 100 per cent of Germany’s power comes from green energy sources such as wind and solar power by 2035. This goal is hugely ambitious and the country has been slow in recent years in ramping up clean energy. The share of renewable energy in Germany’s power mix could already be 80 per cent today if policy conditions had been more favourable, says Claudia Kemfert from the DIW research institute.

But change is afoot: the belief that imported fossil gas equals energy security or has a key role to play in the clean energy transition has been well and truly shattered by Russia’s actions in Ukraine. “Russia’s president, Vladimir Putin, has broken the narrative of natural gas as a bridging technology, the bridge has collapsed,” said Patrick Graichen, Germany’s climate state secretary, this week.

In recent weeks Germany has made some radical about turns, leading to talks of the war triggering a zeitenwende, or historic turning point. Berlin initially refused to deliver weapons to Ukraine or to back the decision to ban Russian banks from the Swift network. There is no reason why the country wouldn’t also change its opinion on an energy embargo should the atrocities being perpetrated by Russia in Ukraine continue. The German finance minister, Christian Lindner, responded this week about a potential targeted, temporary halt to imports of Russian oil and gas, he said that “all options are on the table” within the framework of “what puts pressure on Putin and what would harm us more”.

It should also be noted, however, that Germany is not alone in its opposition to energy sanctions, other EU member states such as Hungary and Bulgaria, which are heavily reliant on Russian fossil fuels, are likewise critical of the idea.

There are also economists who suggest that banning Russian energy imports would not actually do much additional harm to Putin’s war machine. Andrew Watt, a researcher at the Macroeconomic Policy Institute at the Hans-Böckler-Stiftung in Düsseldorf, has said that the sanctions on the Russian central bank already mean the country cannot widely use the foreign currency it receives through energy sales.