Gas supplies: Putin’s humiliation ritual is a warning shot towards Germany | Business News

Last week, the former German chancellor, Gerhard Schröder, gave a rare interview to the New York Times.

Schröder has been elusive lately for a glaring reason: he, more than anyone else in recent decades, has been utterly and unashamedly associated with Germany’s reliance on Russian energy.

Having left office, he worked for years on plans to build new pipelines directly between Germany and Russia, cutting out Ukraine and other transit nations.

He is close friends with Vladimir Putin and has been nominated to the board of Gazprom, the Russian state gas company.

Even before the Russian invasion of Ukraine, he had become something of a pariah in his homeland; when the tanks rolled over the border, he became an outcast.

There were plenty of interesting details in the interview but one is worth pondering for a moment. Asked whether Russia would cut off supplies of gas to Europe, he said: “It won’t happen,” adding that if it did “then I would resign”.

Schröder may be a pariah but his views on this are generally echoed throughout German politics, or certainly were before the war with Ukraine. I have lost count of how many times I have been told words to the effect of: Russia will not turn off the taps.

As Schröder told the NYT: “They got the money and they delivered the gas. Even in the toughest times of the Cold War, there were never any problems.”

The problem with this version of events is that this is not quite right, for there was one famous episode in 2009 when Gazprom refused to supply gas to Ukraine.

It followed a set of disputes with the Ukrainian gas company: Gazprom alleged, with some reason, that payments were missed and gas had been stolen in transit through Ukraine. Russia ended up cutting off Ukraine and much of southern Europe for 13 days.

Doesn’t this episode count as an interruption, or at the very least a “problem”? Shouldn’t it have given Schröder et al pause for thought? Ah, tut the technocrats in Berlin.

But this incident, unhappy as it was for some of our southern neighbours, didn’t constitute a genuine interruption. It wasn’t a political dispute but a contractual disagreement. Distinctions like this are rapidly being shown up for what they are: desperate naivety.

Roll on to today, and now Poland and Bulgaria have been disconnected from Russian gas. And lo and behold, the explanation technically comes back to another contractual dispute. Russia has insisted on being paid not in euros, as these contracts invariably are, but in roubles, the Russian currency.

There is little economic or financial rationale for this demand.

It isn’t, as far as anyone can tell, necessitated by the sanctions on Russia. There is no reason why Gazprom couldn’t accept the euros for the gas and convert them into roubles itself.

But Vladimir Putin has decreed that the only way of paying these contracts in future is for European gas companies to set up accounts with Gazprom’s financial arm and do the conversions themselves. The objective is to score political points; it looks a lot like a form of politico-economic humiliation ritual.

Poland and Bulgaria have refused to engage with the ritual and pay in roubles, which is why they have been cut off. This may not be the end of the world, either for Russia or these nations. For one thing, we are now in the spring, when Europe is significantly less reliant on gas than usual.

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Poland has plenty of gas in storage and plans, by the end of the year, to start importing liquefied natural gas instead of the stuff piped in from Siberia. Bulgaria is more reliant on Russian pipeline gas, but is also due to be connected to a new pipeline which will allow it to receive gas from Azerbaijan via Greece.

However, this isn’t really about Poland and Bulgaria. It’s about the big beasts in the gas importing business: primarily Germany and, to a lesser extent, Italy. The decision to cut off Polish and Bulgarian flows looks a lot like a warning shot: if you don’t follow suit and prostrate yourselves, something similar will happen to you.

And make no mistake: while Europe can almost certainly shrug off a couple of countries losing their gas supply, the cessation of gas flows to Germany would result in a sudden and sharp recession in the continent’s biggest economy.

That raises a question: will German importers begin paying for their gas in roubles?

If they engage in Putin’s humiliation ritual, the Russian president will doubtless herald it as a victory for Moscow.

If they refuse, well, Russia has set a precedent: it will cut off the gas supply. For “technical” reasons. What will Gerhard Schröder make of that?