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Russian Gas Cuts Will Not Kill the German Economy

Expensive energy, particularly natural gas, poses a difficult economic and political challenge for all energy-importing industrialized countries. But the data suggest that Germany is better placed than most of its main competitors to weather the current crisis caused by reduced Russian deliveries.

BRUSSELS – Much of the conventional wisdom about Europe’s current natural-gas crisis – triggered by reduced deliveries from Russia – rests on two assumptions: that the German economy depends on cheap Russian gas, and that this bet has gone spectacularly wrong. But while German industry is strong, and the country imports a lot of natural gas from Russia, a closer inspection of the numbers and economics involved does not support the prevailing narrative.

For starters, natural gas does not play a large enough role to drive an industrial economy. In 2019, gas imports via pipeline cost Germany $30 billion, representing only 0.75% of its GDP, and the overall value of the country’s gas consumption was below 2% of GDP. These modest ratios are similar across industrialized economies and suggest that cheap gas imports are highly unlikely to be a major growth factor. Moreover, even though gas consumption has stagnated in Germany and most of Western Europe over the past two decades, the economy grew, albeit slowly.

The argument that cheap Russian gas might have favored Germany more than other countries also is not backed up by the numbers. In 2019, Germany accounted for only about 2.3% of global natural-gas consumption, but 4.5% of world GDP. Germany’s gas intensity per unit of GDP is thus about one-half of the global average, much lower than that of the United States and many other industrialized countries, including Japan and South Korea.