The oil factor in the Ukraine war

Germany, which depends on Russia for two-thirds of its gas imports, is thinking of alternatives after the Russian attack on Ukraine, and the imposition of economic sanctions on Moscow.

After February 24 when the attack was launched, the initial sanctions from the United States and the European Union (EU) were confined to the financial system and bank transactions and excluded oil and gas exports from Russia.

Recently, US President Joe Biden had imposed sanctions on Russian oil and gas supplies. The EU has not followed suit, but it had decided that it would decrease its dependence on Russian imports by the end of the year. But Germany finds itself in a difficult position because its dependence on Russian gas imports is greater than that of its other European neighbours. And Germany for more than a decade now has been the powerhouse of the European economy.

It is in this context that German Finance Minister Christian Lindner of the Freedom Democratic Party in Social Democrats-led Chancellor Olaf Scholz’s coalition government, which also includes the Green Party, is forced to look for alternatives. Under the coalition agreement, no new drilling is allowed beyond the existing framework.

Lindner has now come up with the suggestion that Germany might have to start oil drilling on its own, something which the country had given up because of its commitment to phase out fossil fuel energy sources.

Lindner, speaking to a German newspaper Tagesspiegel on Sunday, had confessed that Germany may have to get back to oil drilling on its own as part of the transitionary phase. “We have to question the decision in the coalition agreement. Due to global market prices developments, this looks more economical.” He said, “Against the changed geopolitical background, I think it is advisable to examine the entire strategy of our country without any prohibitions on thinking.”

He also refused to bring down the sales tax on petrol and diesel from 19 per cent to seven per cent as demanded by some politicians despite the sharp rise in fuel prices.

He asked if the sales tax is to be reduced, how would that deficit in the budget be filled. Or what the cuts in the budget that could be made. He confronted the conservatives who were demanding a brake in tax on fuels asking: “If the conservatives call for a fuel price brake, they must say what they want to cut in the budget. Or admit they are prepared to take on new debt for this.”

Meanwhile, Russia on its part is looking for alternative foreign investments in its oil sector. A statement issued by the Russian embassy in India quoted Deputy Prime Minister Alexander Novak as saying, “Russia’s oil and petroleum product exports to India have approached $1billion, and there are clear opportunities to increase this figure.”

The statement further quotes Noval having told Indian’s Petroleum and Natural Gas Minister Hardeep Singh Puri, “We are interested in further attracting Indian investment to the Russian oil and gas sector and expanding Russian companies’ sales networks in India.” Reuters news agency which has carried this statement has not referred to any Indian response.

What is more important is the fact that Russia is looking to alternative collaborations. It is generally expected that Russia would strengthen its economic ties with China as Europe and America turn hostile. India has so far maintained a neutral stance. It abstained from condemning US-sponsored resolutions in the United Nations condemning the Russian invasion of Ukraine.

But India, along with China, Pakistan and others while not condemning Russia, expressed concern over the sovereignty and territorial integrity of Ukraine.  Western countries have however been pressurising India to condemn the Russian action and join the sanctions regime.