May 17, 2022

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Germany Girds for Day of Reckoning in Russian Gas Showdown

2 min read

(Bloomberg) — If the worst-case scenario for Germany hits, BMW AG, Mercedes-Benz AG and Volkswagen AG would struggle to paint their cars and the air across the country would get dirtier.

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Europe’s largest economy is bracing for the prospect that Russian natural gas gets cut off suddenly, a shock that would trigger a form of martial law for energy and affect 80 million residents and businesses from bakers to chemical producers.

Auto factories may be forced to switch to more expensive propane or butane to generate the steam and heat for paint shops. Utilities will likely generate more electricity from lignite — an even dirtier form of coal that’s dug up by giant excavators in open-pit mines from Dusseldorf to the Polish border. Economists have forecast the damage at 220 billion euros ($230 billion), more than enough to tip the country into recession.

That possibility moved a step closer this week after Moscow curbed natural gas deliveries to Germany. While the action was a mere warning — hitting about 3% of the country’s Russian gas imports, or roughly 1% of overall supplies — the Kremlin showed it’s prepared to squeeze its largest customer in the back-and-forth economic retaliation over the war in Ukraine.

Chancellor Olaf Scholz’s government accused Moscow of weaponizing energy while insisting Germany can cope with the reduction. Still, the country’s vulnerability is clear, and every little turn of the tap unsettles politicians, boardrooms and markets — European gas prices jumped 22% on Thursday on the supply jitters.

Robert Habeck, Germany’s economy minister and vice chancellor, acknowledged the country’s exposure in a speech to lawmakers hours after Moscow unveiled sanctions on 31 European entities including a unit of Gazprom PJSC that Berlin seized to secure supplies.

“Energy can be used powerfully in an economic conflict,” he said on Thursday in Berlin. “This shows that the confrontation over energy…



2022-05-14 07:10:47

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