Germany went to the polls on Sunday to choose a new leader, bringing a close to the era of Angela Merkel after her 16 years in power. But a major problem awaits the new chancellor of Europe’s largest economy: rising energy costs.
Droughts in Brazil, reduced output in the North Sea and other global supply and demand pressures as economies reopen from the pandemic have sent wholesale natural gas costs spiralling, with little sign of easing off over winter.
European contracts are already up about 250pc this year, forcing fertiliser plants in Europe and Britain to shut down, hitting household finances and threatening the eurozone’s recovery.
France, Greece and Spain are all planning extra help for households facing crippling costs, while fixed-priced deals for households in Germany will only hold back the pain for so long. About 310,000 German households are already facing an 11.5pc increase to bills of about €172.
Amid clamour for a co-ordinated response, the European Commission is trying to develop measures to help countries in the bloc respond to surging prices within energy market rules, including by tweaking VAT or other charges on bills.
It is also facing calls to investigate Russia’s role in the crisis, given accusations that the state is restricting supplies to put pressure on Germany to quickly approve Russia’s controversial new Nord Stream 2 pipeline to Germany under the Baltic Sea, bypassing Ukraine.
“Undoubtedly, the quickest launch of Nord Stream 2 would significantly balance out the pricing parameters of natural gas in Europe, including on the spot market,” said Vladimir Putin’s spokesman, Dmitry Petrov, on September 15. “That’s obvious. The demand is high.”
Gazprom, the Russian state gas company behind the project, has rejected the claim of deliberate supply restrictions as “absurd”, arguing that its exports have risen by 23.2pc between January and July.
The pipeline, financed by Western companies including Shell and Engie, has been finished but is waiting for certification from German regulators. The European Commission will then give an opinion, before sending it back to Germany for a final decision.
Analysts expect Nord Stream 2 will lower gas prices in Europe and help keep Europe supplied at a time when its own production is declining. But the prospect of increased reliance on Russia and the threat to Ukraine has sparked concern in Europe and the US.
Among those trying to make sure the project succeeds is Merkel’s predecessor Gerhard Schroeder, 77, who signed up to work for Gazprom’s first Baltic Sea pipeline project (now known as Nord Stream 1) after leaving office in 2005, one of the more controversial career moves among former Western leaders. In 2016, he also became chairman of the board of directors of Nord Stream 2.
There is “too much ideology” caught up in the Nord Stream 2 project, the former Social Democratic Party (SPD) leader argued in February as Germany came under renewed pressure to ditch the pipeline following the poisoning in September of Russian dissident Alexei Navalny, blamed on Moscow.
“It is clear that we should place our bet on renewable sources,” he said, according to the Russian news agency Tass. “However, there won’t be enough of them in the foreseeable future to provide our economy with energy at an affordable price.”
Schroeder’s move to Russia’s energy industry sparked outrage in Germany, but also highlighted the complexities of the relationship between the two countries in the wake of the West German Ostpolitik of the 1970s that encouraged gas trade to cut tensions. In all, about 40pc of Europe’s gas comes from Russia.
Schroeder’s ties with Russian state energy companies deepened in 2017 with his appointment as chairman of Russia’s state-controlled oil producer Rosneft, three years after the EU had slapped sanctions on the company in response to Russia’s annexation of Crimea in 2014.
“If [he] thinks he wants to ensure energy security in Germany, then I consider that a bad joke since he will only be increasing Germany’s dependence on Russia,” Norbert Röttgen, then head of the Bundestag’s foreign affairs committee, said at the time.
Schroeder faced calls to resign from his Russian posts again last year in the wake of Navalny’s poisoning. An opinion poll for the Augsburger Allgemeine newspaper found 53pc wanted him to give them up, while 33pc had no problem with the roles.
He has defended his work, accusing critics in August 2017 of wanting to push Germany into a “new Cold War” and stressing that Rosneft is “the largest oil company in the world, with important links to Germany” and “not the long arm of the Kremlin.” BP owns a 19.75pc stake in the company.
Credited with helping turn Germany into the economic powerhouse it is today, Schroeder was brought up in poverty after the death of his father fighting in Romania in World War II, and has two adopted children from Russia, Viktoria and Gregor.
His relationship with Putin deepened after both opposed the 2003 Iraq invasion, and he has described how the pair can “speak openly and even controversially with (each other) because it was always clear that no one else would ever know what we talked about”.
Despite the criticism levelled at Schroeder, there has been little serious appetite in Germany to drop the pipeline. Foreign minister Heiko Maas indicated in a year ago that Germany could withdraw support in the wake of Navalny’s poisoning. But the US and Germany have since struck a deal allowing the project to go ahead, albeit promising to punish Russia if it tried to use the pipeline to harm Ukraine.
Armin Laschet, the Christian Democratic Union’s candidate to succeed Merkel, has said gas flows could be stopped if Russia uses the project to pressure Ukraine. The SPD has backed the project. The Greens have called for it to be scrapped.
“Angela Merkel had multiple opportunities to kill this project and chose not to,” says John Lough, associate fellow of the Russia and Eurasia Programme at Chatham House and author of Germany’s Russia Problem: The struggle for balance in Europe.
“The resolve there to deal with this issue has not been present and that is revealing of this Ostpolitik legacy – this belief that if you trade with Russia and keep the energy relationship in place it reduces the risk of real confrontation and a breakdown in relations. It’s kind of an insurance policy. And German industry’s view is that Russia is a source of cheap gas.”
He adds: “It’s clearly very damaging to Ukraine’s interests – and I think there is a large measure of hypocrisy on Germany’s part, claiming it wants to support Ukraine energy security and yet this runs absolutely counter to Ukraine’s energy security needs.”
It is “no surprise”, Lough said, that Russia is using the soaring gas prices to put pressure on Germany over the start-up of the pipeline – albeit it may not have been their plan from the outset.
“From what I read in Russian sources even they were taken by surprise by the diversion of liquefied natural gas to the Asian market, which then left this shortfall and then there have been other factors,” he said.
“But they use opportunities and people seem to be surprised when they do. Of course they are going to use this opportunity to put pressure on the German regulator.”
