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Understanding German-Russian Trade Relations

12 Aug 2014

The importance of Germany's trade and energy links with Russia is inevitably a key factor shaping Germany's attitude to their relationship.  This has come into sharper focus with the crisis in Ukraine where Germany has been seen as reluctant to join in serious sanctions against Russia, preferring to encourage negotiations to resolve the issues there. 

The two main strands in Germany's economic relationship with Russia are trade and energy and this blog analyses the extent and importance of these links.

German Trade with the Russian Federation

German-Russian trade has a long history. 100 years ago Russian exports to Germany accounted for 30% of total foreign sales. Russian imports from Germany exceeded 46% of total imports. Most of the trade was made up of food, manufactured goods and, then as now, raw materials.

Russia is a major trading partner for Germany. It is the 7th major source of German imports and the 11th major export market for German goods and services. Total trade between the two countries exceeded €76bn in 2013. The balance of trade is in Russia’s favour (+€4.4bn in 2013).

German exports to Russia are more diversified than imports with machinery and vehicles leading the field.

Although many large and small German firms would be hit by a decline in trade resulting from increased sanctions, overall German trade is not greatly dependent on Russia. Most German export firms have a much greater focus on China and the growing Asian markets. In 2013, German trade with China totalled €140bn, almost double its €76bn Russian trade.

Approximately 10% of all German exporting firms sell to Russia. For about 75% of these, exports to Russia account for less than 25% of their total exports.

Imports from Russia comprise mostly fuels with only 1% of German firms importing from Russia. However, in value terms, 50% of German imports from Russia are imported by firms for whom these imports account for at least 75% of their total imports.

Russia values its trade with Germany highly. The website of the Russian Federation Embassy in Berlin notes: ‘The Federal Republic is the number one partner for us in Europe and so holds a key position in the foreign economic contact system of our country’.

German trade with Russia is important but not decisive when compared with its trade with other partners.  On the other hand, Russian trade with Germany is important for Moscow and the Russians would have at least as much interest in avoiding a breakdown in economic, or indeed political, relations. Over half of the Russian government’s revenue derives from the sale of fuels with 80% of its oil and 70% of its gas exports going to the EU.

Trade in Energy

Russia has vast reserves of key raw materials. It accounts for 20% of the world's land area, 22% of the forests, 20% of fresh water and 16% of the mineral resources with almost 25% of global gas reserves, 5.3% of oil reserves and is the second largest source of coal reserves.

The EU is a key market for Russia. Over 40% of its trade is with EU states and the EU relies on Russia for 30% of its gas and 35% of its oil.

Germany is also highly dependent. Oil, gas and coal make up 75% of total German imports from Russia with 36% of its gas imports and 39% of oil imports coming from Russian suppliers with 50% of the gas flowing through pipelines crossing the Ukraine.

The argument can be made that Germany is less dependent on Russian fuels and therefore less vulnerable than many other European countries. The Baltic states and Finland import 100% of their gas from Russia with Poland, Hungary and Slovakia sourcing the majority of their gas requirement from Russia.

In the longer term there is also potential for Germany to diversify its sources, by, for example, increasing gas supplies from Western European based sources or even from the US (although this would be considerably more expensive). However, Germany’s reliance on Russian gas is unlikely to decrease in the near future.

In May 2014, Germany’s Economy and Energy Minister, Sigmar Gabriel, declared ‘I don’t’ know anyone in the world who could tell us how Europe’s dependency on importing Russian gas can be changed in the short term’.

German dependence of energy imports from Russia is significant and a breakdown would cause significant short- to medium-term problems that are difficult to address, as Gabriel points out. Energy, even more than trade, would help to explain German reluctance to engage in serious sanctions against Russia.

The German reliance on Russian sources of energy is an issue for Europe and not just Germany. Earlier this year Poland’s Prime Minister, Donald Tusk, warned: 'Germany’s dependence on Russian gas may effectively decrease Europe’s sovereignty. I have no doubts about that’. He said he would be speaking with Chancellor Merkel about Germany taking steps ‘so that dependence on Russian gas doesn’t paralyse Europe when it needs…a decisive stance’. (Reuters). Poland itself is highly reliant on Russia as a source of fuels but has been taking steps to reduce this dependence in recent years.

German-Russian Business Links

In 2012, over 6,000 German companies were registered in Russia. These firms had a combined turnover of €40bn and employed around 270,000 people. In Germany, 350,000 jobs are estimated to depend on business with Russia. German firms have invested in excess of €22bn in Russia with Siemens, Volkswagen, BASF, Metro and Henkel among the leading players. In 2013, 132,400 German cars were sold in Russia and German mechanical engineering companies achieved €9.5bn in turnover from their Russian trade. The percentage of turnover dependent on Russian trade has been increasing for many leading German firms e.g. BASF 14%, Metro 8%, Adidas 7%.

The importance that many major German firms place on Russia is indicated by the fact that the new Siemens CEO Joe Kaeser visited Russia three times within his first 100 days in office and included in his itinerary a meeting with Vladimir Putin. Siemens employs approximately 3,120 in Russia and have €2.2bn revenues from their Russian business. Volkswagen has built a €1.4bn plant in Kaluga with 5,000 employees and BMW has a small plant in Kaliningrad.

German businesses with links to Russia have been lobbying against stronger sanctions over Ukraine. They are pressing all sides for greater dialogue. Dr. Eckhard Cordes, the German Chair of the East Committee of the German Economy (Ostausschuss der Deutschen Wirtschaft) and co-chair of the Economy Working Group of the Petersburg Dialogue[1], has called for Germany to play a lead role in developing this dialogue. Last autumn he commented, prophetically: ‘In the light of the current tensions between Moscow and Brussels, Germany must strengthen its role as a ‘go-between’’.

Competition between bringing Ukraine into a closer association with the EU and integrating the country into the Russian-founded Customs Union is seen as having been a key element in kicking off the current conflict. The German-Russian Chamber of Foreign Trade warned in a position paper in early May 2014 that further economic sanctions would lead to a loss in German market share which in turn would be long term and sustainable and would cause ‘irreparable damage’ to Germany’s competitive position. The recent (July 2014) shooting down of a Malaysian Airlines commercial flight has re-ignited the call for economic sanctions by EU states against Russia and considerably weakened the anti-sanctions business lobby.

Pivotal Role of Angela Merkel

Angela Merkel has assumed a key role as an interface between the EU and the West and Russia – a role that will likely only grow in the future. She understands Russia perhaps better than any other western leader; she speaks fluent Russian and won national school prizes in the GDR for her competence in the language. She has a longstanding interest in the country and is an admirer of Catherine the Great, whose picture stands on her office desk.

Being brought up in the former GDR she has direct experience of the use of Russian power. In particular, she knows what she is dealing with in Vladimir Putin. As an interesting anecdote, she has a fear of dogs. Nevertheless, Putin bought his black Labrador, Koni, to a meeting with her in which the dog was permitted to roam around off lead. Although discomforted, Merkel maintained calm self control, but it is doubtful that she has forgotten this incident.

She is the daughter of an East German pastor and has a strong interest in human rights. She has often criticised Russia for human rights violations and played a key role in the release of Mikhail Khodorkovsky.

This background may go some way towards explaining why she has supported a somewhat stronger line on sanctions over Ukraine, in contrast to a number of her predecessors, notably Helmut Schmidt and Gerhard Schroeder, who have advocated a conciliatory approach to Russia. She has clearly stepped up to the mark and taken on a leadership role to help resolve the Ukraine crisis. Since the landslide election of Petro Poroshenko to the Ukrainian presidency, the German Chancellor has increased these efforts further and has become a, if not the, key figure in defining the relationships between Russia, the EU and the wider western world.

In taking on this role she is assuming, perhaps reluctantly, the mantle of a world and not just a German or European leader.

Maybe a future Russian president will have her photograph on their desk.

[1] The Petersburg Dialogue is a bilateral discussion forum to increase understanding between civil society in Germany and Russia formed in 2001 by Gerhard Schroeder and Vladimir Putin.

As an independent forum, the Institute does not express any opinions of its own. The views expressed in the article are the sole responsibility of the author.


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