Policy Regarding Path of Russian-German Relations

Policy Regarding Path of Russian-German Relations

Sigmar Gabriel, Vice Chancellor and Minister of economic affairs and energy of Germany, visited Moscow from Oct. 28-29. The German politician had previously visited the Russian capital in March of last year, prior to a memorable referendum on the reunification with Crimea. Are we to understand that the ice has broken, and the German business community has finally convinced its politicians that the sanctions against Russia represent a road to nowhere, and if so, that it’s time to make an effort to find an exit strategy? Alas, that would be an overly optimistic assessment.

It must be acknowledged that the relationship with Russia plays a rather modest role in the German economy. The decline in oil prices, plus the European Central Bank’s policy of preserving a record low benchmark refinancing rate has greatly contributed to the growth in German exports, which the German Association of Exporters predicts will reach a record high of 1,091 billion euros in 2015. But this growth comes amid continued decline in exports to Russia. In 2014, exports of German goods to Russia decreased by 18% compared with 2013, and by 31.5% in the first half of 2015 compared with the same period in 2014. Between January and June, Russia purchased 10.5 billion euros’ worth of goods from Germany – compare that figure with the expected total volume of German exports. Last year, Russia was Germany’s tenth biggest import partner, and ranked no. 13 when it came to exports. Is it surprising that the German media paid more attention to Merkel’s visit to Beijing, which coincided with Gabriel’s visit to Moscow? After all, China is Germany’s no. 2 import partner and the fourth biggest recipient of total German exports.

However, this explanation still does not reflect the full picture.

Russia remains an important supplier of fuel and raw materials. German consumers (both businesses as well as the public) need Russian oil and gas. This undeniable truth was confirmed at Gabriel’s meeting with the head of Gazprom, Alexei Miller. In fact, their previous working meeting in Berlin, at the beginning of October 2015, had the same outcome. Gas supplies are particularly important now, as Germany has agreed to reserve some of its lignite-fueled power plants for use solely as emergency backup power, starting in 2016 (which really means shutting them down). That will remove from the grid approximately 13% of the capacity coming from power plants of this type, which is quite a lot, if one takes into account that in 2014 a quarter of Germany’s electricity was generated by burning lignite (also known as brown coal). Berlin justified that decision by citing the need to meet its commitments to lower greenhouse gas emissions.

And since Germany intends to reduce its use of nuclear energy, power plants fueled by natural gas are the most logical choice when seeking a steady supply of an environmentally neutral energy resource. Germans are well aware of this, which is clearly evident in the decision by the German companies Eon and BASF to help expand the capacity of the gas pipeline across the bottom of the Baltic Sea (the Nord Stream 2 project). Another German partner working with the Russian fuel and energy sector, the company Wintershall, this summer confirmed its intention to invest about 500 million in the Achimgaz and Volgodeminoil projects, as well as the Yuzhno Russkoye gas field by 2018, all of which should produce a total of 28 billion cubic meters of gas per year (for comparison: Germany annually consumes about 90 billion cubic meters of gas, and last year Gazprom sold 40 billion cubic meters to Germany). The German federal government is not going to throw a monkey wrench into the plans of its domestic energy companies that produce and buy gas in Russia, and is thus quietly demonstrating its noninterference in business matters. The Germans really have no desire to ideologize their energy policy or to reduce it to belabored attempts to ensure «energy independence» from Russia at any cost. In the past Germany has had to defend this position before its American partners, who were very unhappy with Berlin’s actions.

Today, the federal government must defend the German business community’s right to freedom, not only before the United States, but also within the EU, which has officially made reduced dependence on Russia into a cornerstone of its energy policy. This position is already having a negative effect on Russian-German cooperation in the energy sector. In fact, because of the Aug. 2015 requirements of the Third Energy Package, Gazprom moved to sell its stake (10.5%) in the company Verbundnetz Gas, which supplies gas to the regions of the former East Germany. Another example of the negative impact of the EU’s energy policy on Russian-German cooperation is the requirement by a German regulator (the Federal Network Agency) that Gazprom Germania GmbH (a subsidiary of Gazprom) end the sale of compressed gas at filling stations. Gazprom Germania was forced to file a complaint about this requirement with the District Court of Düsseldorf.

There would seem to be little reason to worry about the scandalous dependence on Russian gas, given the declining price of oil and, consequently, of gas. In monetary terms, Russian exports to Germany are dropping significantly, because oil and gas account for 3/4 of the value of those exports. In 2014, exports from Russia to Germany decreased by 7%, and then by 24% in the first half of this year. Incidentally, these figures indicate that German businesses are not particularly interested in anti-Russian sanctions right now, because the environment for trade with Russia currently favors Germany.

Given this context, special mention should be made of an initiative by Germany’s Volkswagen Group, which allocated funds for humanities research by scholars in Germany, Russia, and Ukraine. But the project never came to fruition: Kiev forbade Ukrainian scholars to take part in it. The Volkswagen Foundation website states: «At the end of January, the Ministry of Education and Science of Ukraine published a statement calling upon Ukrainian scientists not to participate in the ‘Trilateral partnerships’ call. Despite efforts by the Foundation to achieve its withdrawal the Ministry officially hold on to this appeal». Observers believe that American influence in Kiev compelled the participants to frustrate the project. And so the attempts of the German business community to help normalize the situation in Ukraine have been thus far unsuccessful.

German Vice Chancellor Sigmar Gabriel’s visit to Moscow demonstrated that this politician is not prepared to propose a future for Russian-German economic relations that is unburdened by preliminary political provisions. In particular, any assistance promoting the project to construct the Nord Stream 2 pipeline is dependent upon Russian non-opposition to the transit of gas through Ukraine. How is one to understand this? After all, Russia has already made many concessions to the Ukrainians, including waiving the requirement to pay the fines owed under the take-or-pay contract for gas that was refused (as a reminder, under the terms of the 2009 agreement, Ukraine committed itself to purchase fixed quantities of Russian gas). The time has long passed for acts of charity or gas shipments sent without advance payment, and Europe’s silent agreement can be seen in its offer to loan Ukraine the money to buy Russian gas.

After listening to Gabriel’s inarticulate position at the talks in Moscow, one must agree with the German media’s assessment that he would be a weak candidate for the post of chancellor of Germany.