Is a German import ban on Russian energy feasible?

As Russia’s war in Ukraine grinds on into its second month, Western countries are facing stepped-up pressure to escalate economic sanctions. Calls across Europe to cut off imports of Russian oil and gas have grown ever louder. But given Germany’s dependence on Russian energy, is this a feasible scenario?

The answer? It’s complicated. And it depends on whom you ask.

One of the major consequences of Russia’s attack on Ukraine has been the announced sea change in German policies. In an address to the German Bundestag on February 27, Chancellor Scholz announced a Zeitenwende, or historical turning point, followed by promises of a major build-up in military spending and accelerated efforts to wean the country off fossil fuels – especially those coming from Russia.

The European Union voted this month to phase out all imports of Russian coal by mid-August. Yet, this still leaves imports of oil and gas – a significantly higher source of revenue for Russia – untouched. Around one-third of the oil and more than half of the natural gas used in Germany come from Russia.

How easy then would it be for Germany to give up on Russian oil and gas altogether? This weighty question has occupied German think tanks, academia, the media and the government over the past several weeks. And answering that question has led to a heated debate among German economists, researchers and policymakers.

On one side, voices such as the German think tank IMK (with close ties to trade unions) have argued that German gross domestic product (GDP) could drop by over 6% if an immediate and complete ban on Russian energy were implemented. They are backed up by the German industrial lobby, BDI. A statement on March 9th summed up their position: “An embargo threatens to punish Germany and the EU more severely than the aggressor. The consequences of an energy embargo on industrial output, supply chains and the security of supplies could be dramatic. It is impossible to replace these energy imports overnight.“

The government has also so far strongly resisted any serious talk of an embargo. Vice Chancellor and Minister for Economic Affairs and Climate Action Robert Habeck has even talked of a threat to “social peace” if all Russian oil and gas imports were to be banned.

On the other side, several economists at independent economic research organizations have argued Germany could indeed withstand a near-term ban on Russian fossil fuel imports. The German Institute for Economic Research (DIW), for example, recently argued that an embargo would be manageable with a coordinated effort at the European level (i.e. joint procurement, diversification of sources, accelerated exit from fossil fuels, etc.). A paper published by the ifo Institute came to similar conclusions arguing the hit to GDP of an immediate stop to all Russian energy imports would be less than the initial hit from the Covid-19 pandemic.

And on April 13th, the five leading German economic institutes jointly published their semiannual economic forecasts in which they also estimated what would happen if Germany (or Russia) were to cut off all incoming Russian oil and gas. They predict a 2.2% drop in GDP for 2023 in such a scenario, putting them squarely in the “milder” camp and ratcheting up the pressure on the government.

Most analysts agree that stopping coal and oil imports would be manageable. Replacing natural gas, on the other hand, remains the real challenge as European consumers and businesses remain highly dependent on Russian gas.

Whether Germany and Europe will choose to limit or stop Russian oil and gas imports in the near future remains an open question. What we do know, however, is that Germany’s ultimate decision on limiting or stopping oil and gas imports from Russia will have a significant impact on the EU’s continued response to Russian aggression. And also on Putin’s primary source of income.

[Text in blue above has been translated from German by Randal Gernaat.]

Articles and studies referenced above (all in German)

-IMK study

-The German industrial lobby, BDI press release 

-The German Institute for Economic Research (DIW) article

-The ifo Institute article

-The 5 leading economic institutes’ spring forecast press release