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What would happen if Germany were to cut off gas imports from Russia?

2022-04-15 | Germany

Scholz asserts that Germany will stop importing gas from Russia "very soon," but he is careful not to assume the 2024 target that the U.S. and Britain are trying to impose. No wonder. The consequences of a European blockade of Russian gas imports would be devastating. And not only for Germany and Europe.

1. A dire immediate impact

Germany on the way to a new recession... without the need to cut off Russian gas

Germany on the way to a new recession... without the need to cut off Russian gas.

Although according to the first estimates of the Leopoldina Academy, the impact of a blockade of Russian gas would be "manageable" (around 3% of GDP), based on studies conducted by the government itself, Germany would lose 220 billion euros in economic output in 2022 and 2023, equivalent to 6.5% of GDP. In line with the same official sources, inflation would reach an annual record of 7.3 percent in 2022, before falling to 5 percent next year.

For workers and their living conditions it would be a real disaster: in this scenario 400,000 workers would become unemployed and an average family would pay between 1,500 and 2,000 euros per month in gas and electricity.

2. Lasting consequences for key industries

LNG terminals with re-gasification capacity that could meet German demand

LNG terminals with re-gasification capacity that could meet German demand.

Natural gas coming in through the NordStream and Ukrainian pipelines would be replaced by liquefied natural gas (LNG) brought in by ships, so far too expensive to keep the industry competitive. And now even more expensive because any transition involves buying massive volumes and bidding more for them than Asian buyers.

But what the German government - and its neighbors - fear most is the damage it would cause to key energy-intensive industries such as the chemical sector. Damage that would be brutal and immediate in the event of a blockade of imports but that, equally, by switching to liquefied natural gas, would make highly capital-intensive and energy-intensive industries such as fertilizers, the chemical industry in general and steel lose competitiveness. This is no minor matter, we are talking about giants such as BASF, Bayer or Thyssenkrupp on which the German national capital rests.

3. A wave that would wipe out Europe as an export powerhouse

Ludwigshafen, BASF chemical plant

Ludwigshafen, BASF chemical plant

European industry is densely interwoven around German industry. The automotive, construction, food and cosmetics industries depend on production on the other side of the Rhine for both inputs and orders.

In the immediate term, a "moderate" German recession would cause a significant reduction in exports from the rest of the EU, adding to the inflation in production costs that is already affecting industry and agriculture. In fact, they would likely be exacerbated and a spiral of energy and input costs would appear, which would take a large part of the ancillary industry and small agricultural holdings across Europe by storm. Not to mention the almost immediate effects such as the fall of intra-European tourism in the Mediterranean countries.

In the medium and long term, both German and French capital would have no choice but to "re-Europeanize" production, reindustrializing the continent so that the domestic market would absorb the inefficiencies derived from more expensive inputs.

This, which is the French bet and is starting to become a given for Germany, means in reality a massive transfer of income from labor to capital: in order to maintain profitability with higher prices and fewer foreign markets, workers will be forced to work for less and pay more for basic consumption. If we add the impact of the Green Deal, another income transfer, we would not be far off the mark if we put the overall result in the range of 15-35% of the purchasing power of an average working family depending on the country and region.

4. The global consequences would definitely push the global economy towards war

U.S. Marines board an Osprey in Morón.

U.S. Marines board an Osprey in Morón.

The rupture of German-Russian relations would be so painful for capital in the whole of Europe because the "great continent" stretching from Portugal to Japan and Korea has densely, though not homogeneously, interwoven its capitals.

Breaking the international division of labor is not easy but for the US such a scenario has become the main goal for the defense of its imperialist interests, especially against China.

Of course there is resistance: China continues to increase its export capacity among other things because Taiwanese capital helps it to overcome the economic war imposed by Washington, and the EU continues to resist the blockade of Russian exports on which its industry depends.

But the war in Ukraine undoubtedly sets a point of no return. And in case there were any doubts, China is already pulling out of strategic investments in the U.S. knowing that it could soon face the level of economic warfare suffered by Russia. Chinese diplomacy claims that the US plan for the Indo-Pacific aims at breaking the web of capital and trade in the region following the model suffered by Europe.

This change, which we are only now seeing its first symptoms, will have consequences in all areas. One need only read the daily scientific news to realize that the US is using the Ukrainian war to break even the research network and return to "bloc-based science", isolating Russian and Chinese scientists. The inevitable result goes beyond a strong reorientation towards military developments: whole branches of knowledge would seriously stagnate.

The German blockade of gas imports from Russia would further accelerate this process, which has been underway for the past five years, in all branches of production and trade. We would enter directly into a scenario of military-economic blocs with an economy definitively and in all its aspects oriented towards war.