Brent crude rose nearly two percent percent to over $109 a barrel (£86.78) following the news that Berlin had lifted objections. Vice Chancellor Robert Habeck said Germany would not longer “stand in the way”, insisting it had made progress in reducing its dependency on Russia. So far Germany has proved a major sticking point to the prospect of an EU embargo with Chancellor Olaf Scholz warning such as move risked plunging Europe into recession. Victoria Scholar, Head of Investment at interactive investor, noted: “It looks like Germany, which was initially putting up the most opposition is starting to soften its stance despite concerns about what removing Russian oil, which currently counts for about a third of German supply, would mean for Europe’s largest economy.
“Supply concerns are sharply outweighing the effect of a stronger US dollar, which is at two-decade highs as oil markets march higher.
“While oil prices are little changed over the month of April, brent crude is up by more than 50 percent since the December trough.”
A European embargo will require the support of all member states with countries such as Italy and Hungary still showing some opposition.
Mr Habeck warned an embargo “won’t come without pain”.
Germany has so far been heavily reliant on Russian energy imports, accounting for around 40 percent of its gas and 25 percent of oil.
A block on imports would also come at a time of fragile recovery with the economy shrinking in the last quarter of 2021 and seeing just a 0.2 percent rise in GDP for the first three months of 2022.
Melanie Debono, Senior Europe Economist at Pantheon Macroeconomics, warned: “We think an oil ban will hurt the economy but do not expect it to plunge the economy into recession, especially if it’s only gradual, which is what Germany has said it would back, in principal.
“An embargo on gas on the other hand, probably would push the economy into recession—dragging the rest of the EZ down with it—particularly if it’s done immediately.”
A continued surge in energy prices following a block on Russian imports would also put rocket boosters under Germany, and the Eurozone’s, inflation issues.
Despite energy inflation falling slightly in April, the overall inflation rate for Germany has refused to come down, defying expectation to continue on up driven by rising food prices.
Ms Debono said: “Even if the government doesn’t move to ration energy, the embargo on Russian gas would push up gas prices, reversing the fall in energy inflation in April, and pushing up firms’ already-high costs, forcing some of them to close on their own will to limit outgoings.”
Inflation for the wider Eurozone was revealed on Friday to have reached a record high of 7.5 percent for April, piling further pressure on the European Central Bank whose two percent target now seems a long way off.
Even if Germany manages to avoid a recession the combination of weak growth and persistent price rises threatens to see a sustained period of stagflation.
Carsten Brzeski, Global Head of Macro at ING Think, warned even with Government support Germany would “not be able to avoid stagflation.”
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In a note he wrote: “Let’s not get overly enthusiastic about today’s German GDP numbers.
“Of course, meagre growth is better than no growth, but the fact that the contraction in the fourth quarter of 2021 was not even offset and still rather downbeat outlook clearly argue in favour of modesty.”
While Germany has left the door open for a future embargo, for now though it has joined other member states in paying for Russian gas in rubles despite sanctions.
Fears have peaked among European energy firms after Bulgaria and Poland saw gas supplies cut due to a refusal to pay in rubles following a decree by President Putin that ‘unfriendly countries’ would need to use the Russian currency for their gas supply.
Germany’s Uniper, Italy’s Eni and Austria’s OMV are all now believed to be opening ruble accounts with Gazprombank despite opposition from EU officials.