Monday

27th Feb 2017

Doing business with Russia: A German dilemma

  • Oil and gas are Russia's main exports to Germany (Photo: eni.com)

German Chancellor Angela Merkel is a cautious politician. A natural scientist by formation, she never goes for bold statements unless they have been carefully weighed beforehand.

By her standards, the speech in the Bundestag last week was bold.

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She spoke of a three-step reaction to Russia's illegal actions in Ukraine. The assets freeze and visa ban on 21 names adopted on Monday (17 March) by EU foreign ministers are step two.

If Moscow does not change course and "further destabilises the situation, for instance in eastern Ukraine," step three - economic sanctions - will follow. Her statement was repeated on Monday by her spokesman, Steffen Seibert.

Seibert said Russia had done nothing to de-escalate the situation, had isolated itself on the international scene by recognising the "illegal" referendum in Crimea and further fuelled tensions, for instance by seizing control over gas pipelines in eastern Ukraine.

Economic sanctions will hurt Germany, too.

Russia exports mostly oil and gas to Germany, while German firms export industrial machines, trains, cars and medicines. More than 6,000 German companies are registered in Russia and are now fearing retaliatory measures from the Russian government - for instance having their properties seized or their assets frozen.

Smaller firms are fearing the Russian retaliation to a higher degree than big players like Volkswagen, Continental or Siemens. Several medium-sized firms have already halted deliveries to Russian factories to protect their investments, Frankfurter Allgemeine Zeitung reports.

Merkel on Friday downplayed their impact on the German economy, noting that bilateral trade with Russia (€76bn) is not worth much more than trade with the Czech Republic (€60bn), a much smaller country.

She was speaking in Munich where she met the representatives of the business community and industry chambers, who gave a cautious support to her stance.

Ulrich Grillo, head of the BDI association of German industries, said sanctions would hurt both sides. "But when international law is violated, sanctions have to be imposed," he said after talks with Merkel, adding that he was confident the government would decide with "a sense of proportion" in this regard.

Meanwhile, energy firms are speeding up their deals with the Russians. RWE, one of the major energy firms in Germany, on Sunday announced it would sell its oil-and-gas exploration firm in Russia for €5.1 billion.

The buyer is a Luxembourg-based investment fund linked to a Russian tycoon, Mikheil Fridman.

Another German energy company, Wintershall - a branch of the chemicals giant BASF - last Wednesday announced it was selling 20 percent of its gas storage facilities in Germany to Gazprom, the Russian monopoly.

Elmar Brok, a close ally of Merkel and head of the foreign affairs committee in the European Parliament, on Monday told journalists in Berlin that these deals were "irresponsible" and that energy firms need to take "broader responsibilities" than just the end-of-the-month profits.

"I am sure the European Commission will not allow the Wintershall-Gazprom deal. This is a monopoly, there has to be an anti-trust investigation," he said.

A spokeswoman for the energy ministry meanwhile also noted that the RWE deal may be subject to anti-trust investigations.

But both Brok and the government spokeswoman stressed that the "German economy is no state economy" and that the government has no means of telling private companies who to do business with.

As for replacing Russian gas supplies - Germany imports about 30 percent from Russia and the trend is increasing after it decided to shut down its nuclear plants - Brok mentioned possibilities to import more gas from Norway, the Middle East and the US.

"If all of Europe decided not to import any oil and gas from Russia anymore, it would bankrupt Russia. These are all moves that would hurt Russia much more than Europe. We don't want it, but we are not as powerless economically as some may think," Brok said.

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German Chancellor Merkel has said it is "shameful" to compare the independence of Kosovo with Crimea's independence referendum and called on Russia to stop its actions in Ukraine or face economic sanctions.

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Athens agreed on budget cuts worth up to €3.6 billion and extracted some concessions from creditors, but the IMF warned the package might not be enough.

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