With the gas deal, Germany is caught in the middle of Putin’s trap

Russian money for Russian gas: That’s what Putin’s latest move is all about in appearance. Russia is actually testing how serious Germany is about the sanctions.

It was a historic speech, the Chancellor Olaf Scholz held in the Bundestag at the end of February, one that made waves internationally. “In essence, it’s about the question of whether power can break the law. (…) Or whether we can muster the strength to set limits for warmongers like Putin,” said Scholz on the war in the Ukraine.

Now, a month later, the time has come when he has to be measured by these words – and obviously does not live up to his own claim.

Because the limit that Scholz spoke of still seems to be set by Putin – namely with gas.

Calculated: Putin knows how dependent Germany is on its gas – and wants to use it to divide the West. (Credit: Thomas Kronsteiner/Getty Images)

The knee-jerk interpretation of the latest gas deal as a success for the chancellor is and remains pure wishful thinking. Putin has not caved. He’s still demanding what he wanted to enforce a week ago:

The West is supposed to support the ruble rate by paying for gas imports, and Thursday’s charade won’t change that. With the back and forth about payments in euros, the Russian President only gave Chancellor Scholz the opportunity to save face.

If he accepts the deal, it will finally be clear: the German chancellor will allow himself to be blackmailed. Worse still, he shows a weakness towards Putin that the Russian president has nothing but contempt for.

Putin gets exactly what he wants

Right from the start, Putin’s plan was for German importers to store euro currency at a Russian bank and exchange it for rubles in order to pay their bills. Because the currency exchange artificially increases the demand for rubles and thus supports the course of the fluctuating Russian currency.

gets at the same time Russia thus fresh foreign exchange, with which it like in third countries China or India can buy goods such as microchips or weapons (read more read this analysis). So if Scholz responds to Putin’s demands – and everything currently points to this – Germany will help Russia to mitigate the consequences of Western sanctions. That means a break with western partners.

In fact, this is likely to be Putin’s overarching goal. Because the currency conversion happened before this step, albeit via detours: Even before his ruble claim, Russian export companies had to exchange 80 percent of the sales they made in foreign currencies for rubles. The new decree only increases this sum to 100 percent.

Goal number one: finally split the West

The actual purpose of the most recent gas deal should therefore be to feel how united the West is – and how big the sacrifice is that Germany is willing to make.

For weeks, the western partners have been trying to persuade the German government to impose tougher sanctions on Russia. The fact that Putin is playing off his ruble demand right now is primarily a demonstration of power. His message is clear: I determine where the gas goes – and under what conditions.

Call for a gas embargo: Germany has been criticized for its high degree of dependence on Russia.  (Source: Getty Images/Hannibal Hanschke)Call for a gas embargo: Germany has been criticized for its high degree of dependence on Russia. (Source: Hannibal Hanschke/Getty Images)

Scholz now has to decide which place Germany will take: the as the leading force in a strong European alliance or the harmless moralist who shies away from the unpleasant consequences of his words?

One thing is certain: If Germany allows its policy to be dictated by the fear of a gas supply freeze, Putin will not use this card as leverage for the last time. He will probably try to break further sanctions in this way. At the very least, the fear of the end of gas condemns Germany to inaction – no matter how far Putin goes in the Ukraine war.

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Putin is also dependent on the West

But does Scholz have a choice at all? One thing is certain: If Germany does not adapt its payments to Russian ideas, the chancellor is playing big. He is risking the prosperity of entire generations in this country if the cassandra from the economy should be confirmed. As recently as Friday, BASF boss Martin Brudermüller warned of the worst economic crisis since the end of the Second World War if Russia cuts off gas.

The fear seems justified. And yet it must not blind us. Putin currently has little other source of income than energy exports. And its most important partner is – for the time being – the West.

Even before the invasion of Ukraine, the Russian economy was in trouble because of the Corona-pandemic collapsed heavily. No one can say how weak it is now because of the sanctions. So Putin can’t be interested in shutting off the West’s gas completely. He has few other customers.

The “friendly states” are of no help to Russia

Its new hopes, China and India, are not sufficiently connected with pipelines to take the remaining volumes. In the short term, Russia would have little choice but to burn off the gas. In the long term, the gas companies would have to reduce or even stop their production, say experts (Here you can read more about it).

Russia would also feel severe consequences of a delivery stop. So Putin has no interest in a radical break in all economic relations.

Can only lose: Chancellor Scholz and Economics Minister Habeck can only decide on bad options when it comes to gas dependence on Putin.  (Source: imago images/Political Moments)Can only lose: Chancellor Scholz and Economics Minister Habeck can only decide on bad options when it comes to gas dependence on Putin. (Source: Political Moments/imago images)

Of course, Vladimir Putin’s behavior is difficult to calculate when his back is against the wall. But in the past he mostly acted according to an inner logic – even if it sometimes didn’t appear that way to outsiders.

There are only bad options

Germany now has a choice between two evils. The short-term risk of an immense economic crisis if Russia were to actually halt gas supplies, or the long-term risk of being held hostage by a ruthless autocrat and thereby weakening one’s own partners.

We should keep in mind that the second option does not protect us from a delivery stop either. With the sanctions, the West declared an economic war on Russia weeks ago. Now Russia is showing that this form of war not only hurts one side. And the chancellor? Can only lose.

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