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Germany Takes Putin's Blackmail Threats Seriously, Is a Dirty Deal in the Works?

As background for this story, note that Canada delivered sanctioned parts to aid in the Nordstream 1 natural gas pipeline to Russia.
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Image from Politico Tweet

Image from Politico Tweet

Politico reports Canadian lawmakers called to explain return of Nord Stream turbines

Two federal ministers and three ambassadors will be asked to appear before the House of Commons foreign affairs committee to discuss the Canadian government’s controversial decision to return six Nord Stream 1 turbines to Germany.

During a meeting Friday, the committee agreed to call on Foreign Affairs Minister Mélanie Joly and Natural Resources Minister Jonathan Wilkinson to explain why the government decided to waive sanctions on Russia and return the pipeline parts to Germany, where they will be used to help deliver natural gas from Russia. The ministers will be asked to appear by July 22, subject to their availability.

“The government’s decision to suspend their own sanctions is a slap in the face to the Ukrainian people in their darkest hour,” Conservative international development critic Garnett Genuis told the committee. “It’s important that we are firm in our resolve. If we aren’t, then Russia will simply continue to escalate their pressure.”

Putin is Acting Rationally

Eurointelligence accurately notes Putin, is a Rational Agent.

Olivier Blanchard got the Russian gas policies spot on with his comment that Russia is a gas monopolist who faces inelastic European demand, meaning that Europe is dependent on it and has no alternative suppliers. Blanchard goes on to say we are in the rare situation where the monopolist has a reason to raise the price of his commodity to near infinity. The reason is that we announced to the world our intention to get out of Russian gas permanently once we have found alternative energy sources. The only thing that keeps a monopolist sweet is the expectation of further business in the future. We have taken that expectation away. The rational agent from the economics textbook would thus behave like the meanest monopolist. Raise the price until the pips squeak. 

A short while later, the Russia foreign ministry essentially followed up on Blanchard. It said that the further operation of the Nord Stream 1 pipeline will depend on economic sanctions. We expect the Germans to take Russia’s blackmail very seriously. Despite official denials, we believe that there is intense pressure within the government for a dirty deal with Putin: you, the Russians, keep the gas flowing. We, the Germans, commit to buying your gas at least 10 years. But we won't tell anyone now. Nobody will care anymore when this becomes clear in two years time.

This is not what the Germans will ever admit. Not even privately. We may be wrong on this. We may underestimate Olaf Scholz' determination to make Germany, and his party, independent from Russia. The Germans won’t blame Scholz and his government for gas shortages. Everybody knows that the dependency on Russian gas was the work of Gerhard Schröder and Angela Merkel, not of Scholz, Robert Habeck or Christian Lindner.

We already saw that the Scholz administration was willing to break sanctions just for the sake of the gas. They put pressure on the Canadian government, presumably with some heavy pushing from the Biden administration, to send a turbine to Gazprom that was apparently needed for the maintenance work. The idea was, as Habeck said, not to give Putin an excuse to cut off the gas. It is rather naive, but very typical of the German discourse, to think that Putin needs excuses.

We look at Putin as that elusive rational agent from an mciroeconomics textbook. And he is confronted by customers who have never read economic textbooks. We are just adding one and one together.

Short Synopsis 

  • After Russia invaded Ukraine, Germany pledged to end dependence on Russian oil and natural gas.
  • Putin responded by reducing the flow of natural gas to the EU.
  • Putin is acting rationally in the short term by cutting supply to drive up the price.  He is acting rationally in the long term by simultaneously working on new energy pipelines to China. 
  • There is no means for Germany to meet its current energy demands without Russia.
  • Germany pressured Canada to break its sanctions and send parts to Germany. Don't be surprised if those parts end up in Russia. 

Saudi Arabia Buys Oil From Russia at a Discount Then Sells it to the EU

The world's largest oil exporter is buying oil from Russia and reselling it. 

For details, please see Saudi Arabia Buys Oil From Russia at a Discount Then Sells it to the EU

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Sanction Madness

The entire madness of sanctions is in plain sight. Putin is making more on oil and gas, even with discounts on oil than he did before.

In the matter of German military pledges to Ukraine, guess why those deliveries never seem to make it. 

No one knows what Putin might ask for next. But whatever it is, Germany is likely to deliver.

Eurointelligence came to this conclusion: "Despite official denials, we believe that there is intense pressure within the government for a dirty deal with Putin."

The EU has barely lifted a finger on anything and won't, even if there is no dirty deal.

This post originated at MishTalk.Com.

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