Germany Could Face Crippling Energy Shortages When Ukraine-Russia Gas Deal Burns Out

‘No Secure Scenario’: Germany Could Face Crippling Energy Shortages When Ukraine-Russia Gas Deal Burns Out

Nick Pope on June 12, 2023

The German economy and energy minister warned Monday that his country may have no choice but to diminish industrial capacity should the current Russia-Ukraine gas transit deal expire at the end of 2024 without a replacement deal in place, Bloomberg reported.

Robert Habeck, who serves as Economy and Energy Minister, made the comment during his remarks at an economic conference in Germany. He advised that German policymakers must avoid “making the same mistake again” and resolve to not overlook the importance of securing essential energy resources in advance of a supply pinch, according to Bloomberg. The current Russia-Ukraine transit deal allows for Russian gas to flow through Ukraine and into other European countries in exchange for Russian fee payments to Ukraine, according to Bloomberg.

Habeck’s remarks referenced Germany’s apparent unpreparedness for turmoil in the energy markets leading up to the February 2022 Russian invasion and consequent Western sanctions imposed upon Russia. Another failure to prepare for foreseeable supply disruptions will likely produce conditions in which “there is no secure scenario for how things will turn out” for the German economy, he continued, according to Bloomberg.

The two countries agreed to the present deal in 2019, and it is set to expire at the end of 2024 in the absence of any further negotiations, according to Bloomberg.

In the event of a continent-wide shortage caused by the deal’s expiration, Habeck highlighted that existing German agreements with Eastern European nations stipulate that Germany would have to export gas to smaller neighbors in order to offset a deficit during a shortage, according to Bloomberg. These offsetting exports potentially could leave German manufacturers with no other options but to scale down production or to prioritize certain goods over others, Habeck warned, according to Bloomberg.

The transit deal remarkably has survived the war between the two states, with Ukraine still reaping fees from allowing gas transit through its territory from Russia to European states to its west, according to a report from the Center on Global Energy Policy (CGEP). Given the hostilities and mutual political distrust that presently defines the relationship between Ukraine and Russia, the deal is unlikely to be extended or replaced by a similar arrangement before it expires, according to the CGEP report.

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Russia and Ukraine only managed to reach an agreement on gas transit when they last negotiated over the matter in 2019 at the “last minute,” according to the same report.

Germany and the EU at large are already experiencing an energy crisis as a consequence of the war between Russia and Ukraine. Habeck’s remarks come just days after Germany’s leading regulatory official in the energy sector remarked that “the energy crisis is not over yet,” according to Reuters. Russia has already demonstrated its willingness to interrupt its normal flows of gas supply to Europe.