Russian gas supply cuts would cause severe damage

5 April 2022

Leading industrialists in Germany have warned against the severe damage that would be caused by stopping Russian gas deliveries. “If we cut off Russian gas deliveries, the repercussions will be dramatic” Christian Bruch, CEO of Siemens Energy told German language business newspaper Handelsblatt. “For some industries, a steady gas supply is essential. [For example] the glass industry. Once the systems go cold, they're gone,” he said, adding that it was questionable whether the affected companies would invest in Germany again afterwards. Production without Russian gas would be possible, he said, by importing liquified natural gas and building up renewables, but not immediately. Delivering LNG gas from terminals in the west to the east of the country would also be difficult.

BASF head Martin Brudermüller warned of an unprecedented economic downturn that could “submit the German economy into its worst crisis since the end of the Second World War,” he told Frankfurt newspaper Allgemeine Sonntagszeitung. An embargo on Russian gas “would threaten the existence of small and medium-sized companies in particular”, he said, adding that it would take four to five years to substitute the Russian deliveries with other sources. At the BASF plant in Ludwigshafen 40,000 employees could be affected, in addition to many products that are needed in the value chains of groceries and medicines.

More and more companies that are highly depended on natural gas have started to engage lawyers, Handelsblatt reports. Manufacturers of steel, glass, food, and pharmaceutical products in particular have suffered under high prices and want to know what compensation claims they have in case of a cut in the gas supply. Gas suppliers, on the other hand, want to know if they can use “force majeure” clauses (claiming that it is impossible for them to deliver the contracted amount of gas), and therefore are permitted to forego their obligations.

Prices for gas supplied to companies have increased by 51.8 % in the second half of 2021, the Federal Statistical Office said today. Electricity costs for non-household customers were up 11.8 %.

The call for caution, or at least careful consideration of the consequences, has been backed in other quarters. A complete disruption of energy trading between Russia and the rest of Europe would have grave consequences for the economies of Germany and other EU countries, says energy and security policy expert Kirsten Westphal, a senior associate at the German Institute for International and Security Affairs

If the flow of gas, oil and coal from Russia is ended by either side, cascading effects in production and supply chains could lead to the collapse of entire markets, she argues. In an interview with Germany-based online commentator Clean Energy Wire, Westphal says the situation created by Russia's government has long been considered "unthinkable" by many observers who assumed the country's leadership ultimately would be guided by economic interests.

The debate about the advisability of a full embargo is being debated across Europe. While a number of economists have said that an immediate embargo could be handled, others have warned of impacts that may hurt European economies more than Russia in the short term. The German government has repeatedly warned against imposing an embargo on Russian fossil fuels while at the same time redoubling efforts to become independent of these deliveries.

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