The World in Energy Crisis – Morning Briefing Plus

Hello dear readers,

the war in Ukraine brought the world a third week of lies, futile negotiations and endless suffering. There are the Ukrainians, who have to beg for peace in their country, the Russian troops, who are acting ever more brutally, bombing residential areas and encircling cities with over a million inhabitants – and there is the world community, which is watching what is happening almost impotently. Millions of people are now on the run.

But as the war enters its third week, there are more numbers. Numbers that show how this war will also change the rest of the world.

And figures that illustrate how expensive it will be to defend our values ​​and freedoms. The US decision to stop Russian oil imports drove up oil prices. The gas price reached a new record value of 345 euros.

So far, Europe has only been able to bring itself to become independent of Russian energy supplies by 2027. An earlier exit would be too expensive and too risky – especially for Germany.

This dilemma is the result of years of naive German foreign policy, who did not want to see that Russian President Vladimir Putin considers military force to be a legitimate political tool.

Eastern European states had repeatedly warned of such a scenario – that Putin would always go further. But their voices were ignored. Berlin followed the lie of a so-called energy partnership with Moscow. And so, despite all the warnings, more and more pipelines were built – even the German gas storage facilities were sold to Gazprom. From a strategic point of view, a grotesque mistake.

The call for an immediate boycott of Russian energy supplies in Germany is understandable. But it would be wrong to take this step now:

• First, the sanctions against Russia are already taking effect.
• Second, it is by no means certain that an energy boycott would stop the war, as Putin pays his soldiers in rubles, not euros. And he can print masses of them.
• Thirdly, no one is helped if Germany, as the most important economic nation, drags the whole of Europe into a recession. And that would be quite likely in the event of an immediate halt to Russian energy imports. In the medium term, however, Germany should make itself independent of Russian energy supplies.

Harvard economist Kenneth Rogoff describes the war in Ukraine not only as a tragedy but also as a “watershed” for the global economy: “However and whenever this terrible war ends, we will see a strong and sustained increase in energy prices and a sensitive weakening of growth,” he says in an interview with the Handelsblatt.

To put it plainly: we have to be prepared for the fact that a phase with low growth rates and high inflation is about to begin. Our big weekend report is also about this world energy crisis and the consequences.

What else kept us busy this week:

1. The consequences of this world energy crisis are already putting numerous German companies in existential distress. Many of them can no longer afford the skyrocketing energy prices, reports our corporate department. If the prices remain at the same level, “then I certainly don’t have a chance anymore,” says Trigema boss Wolfgang Grupp, who has actually been tried and tested in crises. The energy industry is already panicking about a possible end to gas supplies from Russia. And so the call for help in the direction of Berlin is getting louder and louder.

2. Both Economics Minister Robert Habeck and Finance Minister Christian Lindner have probably heard this call for help. According to information from our Berlin office, the federal government is working flat out on new economic aid to cushion the consequences of the Ukraine war for companies. On the one hand, this is about a Russia protective shield for companies, similar to the one set up during the corona crisis. But work is also being done on an auxiliary instrument for the energy industry.

3. Meanwhile, rising energy prices are driving inflation: The chief economists of the twelve largest German banks and asset managers have therefore raised their forecasts significantly, as an exclusive Handelsblatt survey shows. On average, they expect an inflation rate of around five percent for 2022. The ECB is now reacting to this surprisingly clearly – and is curbing its bond purchases faster than planned. “Inflation will last longer and will probably solidify,” says Princeton economist Markus Brunnermeier in an interview with the Handelsblatt. Incidentally, there is much to suggest that he is right. The Handelsblatt has therefore developed a new inflation early warning system that shows how prices are developing.

4. Two years ago, the pandemic ripped apart supply chains. Today it is the war in Ukraine. Since Putin invaded the country, the supply routes to Russia have collapsed: in the first week of the war, imports of consumer goods fell by 27 percent, describe Christoph Schlautmann and Jens Koenen in a detailed report. German companies pay with rising prices in China business.

5. Meanwhile, Russia is racing unchecked towards national bankruptcy. The rating agencies have drastically downgraded the country’s credit rating, and they expect that Moscow’s default is imminent. Interest payments of more than 100 million dollars on a Russian government bond have to be paid as early as next Wednesday – the next major stress test for the Kremlin.

6. There is also enormous nervousness on the commodity markets. Not only are energy prices skyrocketing, nickel, palladium and wheat are also becoming increasingly expensive. The threat of sanctions from the West is fueling fears that Russia will no longer export raw materials abroad. This is not only driving inflation – food is also becoming scarce in many parts of the world. Equally scarce and increasingly expensive: fertilizers. That should increase the effect. After the world energy crisis looms, I can’t spare you this morning, a world hunger crisis.

7. The mafia used to be loud and bloody, people were shot on the street. Today the business takes place in the background. Italian clans are active in numerous branches of the economy. In the Naples area alone, the police confiscated around 53 million euros in 2015. Now the mafiosi are targeting the Corona reconstruction fund. The EU is therefore examining the country’s spending plans closely. In a report well worth reading, Italy correspondent Christian Wermke describes how a state fights against criminal activity. Big data and artificial intelligence should help.

8. I admit it, I always put off the subject of tax returns forever. But if you feel differently, then you should definitely read the dossier of my colleague Laura de la Motte. It describes what tax offices will be looking at in particular this year.

9. If you only have time for one article this weekend, I recommend this text: They are the diary entries of the young mother Tania Chontoroh that we published last week. The 28-year-old writes about life in the besieged city of Kyiv, sleepless nights on the floor – and the death of her son. “I want people around the world to know our lives, our pain and our struggles,” she writes. A text that deeply moved us here in the editorial office.

I wish you a relaxing weekend despite this difficult time. As always, we will keep you updated 24/7.

It greets you cordially
Yours Sebastian Matthes

Editor-in-Chief of the Handelsblatt

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