‘The whole market risks collapsing’: Germany warns of a ‘Lehman moment’ if Russia cuts off natural gas to Europe

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Germany is on the verge of having to ration its gas consumption as supplies from Russia begin to dry up, and the country’s top economic affairs official warns that this could lead to an economic ripple effect further most important.

Since Thursday, Germany has entered the second alert level of its gas emergency plan, according to Robert Habeck, German Minister of Economy and Climate Action.

At this level, “security of supply is currently ensured, but the situation is tense”, announced the Habeck ministry, after gas supplies along the Nord Stream 1 gas pipeline linking Russia to Germany began to flow. dry up on June 14.

“Even if we don’t feel it yet, we are in the midst of a gas crisis. From now on, gas is a scarce commodity,” Habeck said in a statement accompanying the ministry announcement.

Habeck added that if supply continues to fall and prices continue to rise, it could create ripples that would cause far-reaching and irreparable damage to the energy market, in what he compared to a “Lehman Brothers effect,” referring to when Lehman Brothers investment bank Brothers declared bankruptcy in 2008, sending economic shockwaves through the global financial system.

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“The whole market is in danger of collapsing at some point,” Habeck said.

German markets have been among the hardest hit by the war in Ukraine and Russia’s willingness to weaponize energy exports due to the country’s heavy reliance on Russian gas imports. Russia accounted for 55% of Germany’s gas imports in 2021 and 40% in the first quarter of 2022.

Between the beginning of the year and the end of May, Germany succeeded in reducing Russian gas imports by 35%, but the country’s energy markets remain very vulnerable to the slightest changes in supply from Russia.

When Russia began to tighten gas flows to Germany last week, Russian gas company Gazprom said it was because of technical problems involving a missing gas compressor at a power station on the Russian side of the Nord Stream gas pipeline. The shutdown had an immediate effect, driving gas prices up 24% across Europe, and Habeck responded to the act at the time by calling it “politically motivated”.

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In his most recent statements, Habeck expressed uncertainty that Russian President Vladimir Putin would not resort to the same measures in the future, and he urged Germans to prepare.

“Prices are already high and we have to be prepared for further increases. This will impact our industrial production and place a heavy burden on many consumers. It’s an external shock,” Habeck said.

Habeck added that filling the gas storage before next winter was the country’s “first priority”, but acknowledged that the threat from Russia makes Germany’s energy security outlook less predictable and that rationing measures stricter energy requirements may be unavoidable.

“All consumers – in industry, in public institutions and in households – should continue to reduce their gas consumption as much as they can so that we can get through the winter,” he said.

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While encouraging rationing measures, the move to its second level of alert means that German gas companies and suppliers are now under more pressure to find alternative sources of gas to keep storage levels stable over the coming months. coming months, according to the ministry statement. The German government is giving gas companies $15.8 billion in loans and credits to buy more gas abroad and help boost supplies.

At the second level of alert, companies could theoretically start passing on higher costs to consumers, but the government is not yet allowing that to happen, Reuters reported.

If Germany entered its third level of alert, the government could start deciding unilaterally when and where to ration gas supplies, the ministry statement said.

This story was originally featured on Fortune.com

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