# Blog, Interviews

Germany’s Fear of Russian Gas Squeeze is Misplaced

My Financial Times letter.

The Ukrainian economist Oleg Ustenko is right in highlighting that energy sanctions against Russia are not working. What is worse, they may have even helped fill Putin’s coffers.

Russia is the largest gas and second largest oil exporter in the world. The West discussed from the start of the war until June that it is necessary to sanction this stream of fossil fuels that is so important for the world economy. As a result of this uncertainty, energy prices increased substantially – all while oil and gas continued to flow in similar or even higher quantities. Putin’s profits soared. It was only after the EU announced its precise oil embargo in June and G7 leaders met in Elmau that oil prices declined from their peak. Beyond new commitments of Saudi-Arabia to increase production and a looming recession, markets understood that sanctions would be more limited than foreseen and could be evaded.  

To reduce Putin’s revenues, a rigorous price cap or a tariff on imports of Russian oil and gas would effectively reduce Putin’s revenues while avoiding unnecessary burden on consumers in the West. Germany is particularly worried about a retaliatory Russian embargo. But this fear is ill-placed. First, Putin would hate losing hard currency revenues on which his regime has become so dependent. Second, even if he was going down that road, researchers have now documented that the German economy can substitute gas with other energy sources. It is time to enact strong energy sanctions.