Matt Klein on How Germany Wound up So Dependent on Russian Gas

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:19)

Tracy, of course, on our last episode, we talked about the sanctions that are being imposed against Russia, and they're really extraordinarily dramatic. Obviously, we've seen the Russian financial sector get pounded, all kinds of disruptions, Russian equities listed abroad, their value in many cases going to zero, numerous companies often just voluntarily sort of washing their hands of the Russia business.

But of course, as everyone understands, the one huge, I guess it's the elephant in the room, one area that has not been directly targeted is energy.

Tracy Alloway (0:56)

Right, and this is really, I don't wanna say the crux of the whole issue, but certainly this is something that has played into the fact that Putin invaded Ukraine in the first place.

There's a huge reliance on Russian natural gas in Europe, and I think this is well understood and well established now. And even before the recent actions, prices had been going up, people were talking about inflation and energy crisis, and then this all made it worse. But on the one hand, all of this plays into the geopolitical situation. So there's an argument to be made that Putin feels more empowered in invading Ukraine because he knows that Europe relies on his country for its gas needs. And of course, sorry, I don't know where I'm going with this. There's a lot to say.

Joe Weisenthal (1:43)

There is an extraordinary bit to say. I guess one of the questions is, why wasn't Europe more prepared? Or why hadn't Europe already taken steps to perhaps wean itself off of Russian natural gas and oil and coal, and of course there was the annexation of Crimea in 2014 So it's not like these geopolitical concerns suddenly just came out of nowhere.

Tracy Alloway (2:13)

No, this is where I was going with it, actually, was that Putin has a really good grasp of the energy situation. It seemed to understand that Europe needs Russian gas, but at the same time, it doesn't feel like Europe necessarily understood that, or if they understood it, it doesn't seem like they did anything about it. Everything just sort of went on as it did before. And even after the first invasion of Ukraine and the situation in Crimea in 2014, even after that, you didn't really see Europe back away from Russia in any meaningful way, even though as we discussed with Zoltan Pazar recently, you did see Russia take steps to sort of insulate itself from the West.

Joe Weisenthal (2:55)

And of course, we're talking about Europe broadly, but there's obviously sort of a specific, the key country in Europe from the sort of Russian gas reliance that a lot of this revolves around is Germany, because it is an extremely rich and successful country. It also is extremely reliant on natural gas. And it's sort of taken some odd energy choices because this is a country whose leadership has talked a lot about going green and sustainability and all that.

And yet, it's actually really not done well on hitting some of its emissions goals. It's phased out nuclear, but it also, that means it's more reliant on coal, more reliant on gas. And maybe in the long term, one day be on wind power and solar power and be all renewables, but that seems very long-term. Right here and now, its emissions are going up and its dependence on Russia is acute.

Tracy Alloway (3:54)

Yeah, and I think that's become very, very apparent in the way, well, just the way the whole crisis has unfolded. I will say we're recording this on March 2nd, and I'm looking at Nat Gas, the spot price on the Bloomberg terminal now.

It jumped 60% earlier today. And of course, it's at another fresh record, but it's been at fresh records for multiple times in recent days and indeed in recent weeks. So you can feel all of these tensions and all of this pressure, all of these potentially bad policy choices manifesting themselves in these record energy prices.

Joe Weisenthal (4:35)

Exactly right. So we wanna like push the conversation forward and get more insight into this crisis, this war and the German situation specifically. I'm very excited for this conversation. We've had our guest on one time before. We're gonna be speaking with Matt Klein, he's the founder and publisher of The Overshoot, which is a phenomenal newsletter on economics and the economy. And of course, he is the co-author of the book, Trade Wars Are Class Wars. Matt Klein, thank you so much for coming back.