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Suspension Of Russian Oil, Gas Threatens Germany With Recession

Halting Russian oil and gas supplies to Germany would plunge Europe's largest economy into recession, German banks have warned.

According to a Reuters report, the BDB industry body expects a sharp decline in economic growth this year, to some 2 percent, because of the war in Ukraine—and that's if supplies continue.

"The situation would be even worse if imports or supplies of Russian oil and natural gas were to be halted. A significant recession in Germany would then be virtually unavoidable," the chief executive of Deutsche Bank, Christian Sewing, told media.

"The question of government aid measures for companies and sectors would then become even more urgent," Sewing added.

Last week, after Russia's president announced that Gazprom would from April only accept payment in rubles for its gas, the German government triggered Phase 1 of an emergency plan to kick in if there is a supply disruption.

The plan could see rationing of gas supply. Other EU member states, including Greece and the Netherlands, have also placed their systems and stakeholders on high alert. Italy and Latvia also issued warnings of potential disruptions.

Germany, however, is particularly vulnerable to gas supply disruptions as it depends on Russia for about half of the gas it consumes. Earlier last month, German industrialists urged the government to devise an early-warning system, noting that there are "concrete and serious indications that the gas supply situation is about to deteriorate,"

Now, German bankers have joined the calls for action to prevent the worst, addressing those calls to the European Central Bank. Deutsche's Sewing called on the ECB to end its bond-buying activities and "send a signal" about interest rates, which, he said, was "urgently needed".

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By Charles Kennedy for Oilprice.com

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  • Mamdouh Salameh on April 04 2022 said:
    Germany is particularly vulnerable to Russian gas and oil supply disruptions as it depends on Russia for 65% of its needs.

    Last week, President Putin announced that Gazprom would from April only accept payment in rubles for gas. Refusal by Germany to accept the principle of ruble-for-gas could result in a halt of Russian oil and gas supplies thus plunging its economy into recession.

    Even without a halting of Russian oil and gas supplies, Germany’s economic growth is expected to experience a sharp decline in economic growth to almost 2% this year because of the Ukraine conflict. The situation would be even worse if supplies of Russian oil and natural gas were to be halted. This could reduce German economic growth to almost zero.

    Russia has also signalled that it could soon demand rubles for other exports including precious metals, grains, fertilizers and processed uranium.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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