What would be the consequences of stopping imports of energy from Russia?
(Photo: dpa)
After the terrible events in Bucha, calls for an immediate ban on imports of Russian energy became louder. This cannot be an economic decision, but one should be aware of the economic consequences.
There are two diametrically opposed positions here: BASF CEO Martin Brudermüller fears the worst crisis since the end of the Second World War and the destruction of our prosperity. In contrast, a group of renowned economists, including Rüdiger Bachmann and Moritz Schularick, have calculated that the effects are manageable. The losses amounted to a maximum of three percent of the gross domestic product.
Is it possible to precisely calculate the impact of a shock unprecedented in magnitude and suddenness? The study’s authors acknowledge that analyzing large changes in the economy’s input mix “is bound to involve a high degree of uncertainty”. It is therefore highly uncertain whether the effects of an embargo can be managed.
The authors also point out that their analysis can only capture the primary effects of an embargo. It is therefore not known what the consequences will be for aggregate demand, the labor market and the financial market. It is heroically assumed that economic policy can compensate for everything. It is also not a problem for the ECB to avoid the – presumably massive – effects on the inflation rate.
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Peter Bofinger is a professor of economics at the University of Würzburg and was a member of the Advisory Council.
What is not mentioned is that the negative effects of an embargo on the capital stock could lead to a loss of prosperity for years to come. The economic slump triggered by an embargo cannot therefore be put into perspective by comparing it with the temporary effects of the lockdown.
The big oil exporters form a cartel with Russia
The effects of an import stop for Russian crude oil and Russian oil products (diesel) are hidden. This can easily be substituted by imports from other countries. But where is the third of our oil imports from Russia to be delivered from in the very short term?
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The big oil exporters are in a cartel with Russia, and they have shown no willingness to expand production. Why would they produce more just so we can get the same amount of oil at the previous price? An embargo would also have to include metal imports from Russia, which cover more than 40 percent of our nickel and titanium needs. That would mean further bottlenecks for the steel and automotive industries.
If an import ban is politically unavoidable, you have to be aware that for our economy this is tantamount to an emergency landing outside an airport. As important as it is to assess the possible damage, one cannot avoid the problem that such a unique shock is fraught with a great deal of uncertainty.
More: Heated Economists Debate – What would really be the impact of an embargo on Russian energy?