Russian Geopolitical Challenges: Economic Relations with Germany

I spent many years working on German economic relations with the Soviet Union and then Russia.

I even spent time with Heinrich Vogel and at his institute working on such issues. Heinrich Vogel (1937–2014) was an influential German economist and expert on Eastern Europe and Russia. He served as the director and managing director of the Federal Institute for East European and International Studies (Bundesinstitut für Ostwissenschaftliche und Internationale Studien, BIOst) in Cologne. He led the institute from 1977 until its dissolution in 2000.

Under his directorship, the institute became a major think tank for the German government focusing on political and economic developments in Eastern Europe and the Soviet Union/Russia. Vogel was widely respected for his research and publications on East-West relations and the Soviet/Russian economy.

I had the honor and opportunity to engage with Vogel and his institute on questions of how the West and then West Germany should shape its trade and economic relationships with the Soviet Union in order to widen the enagement between East and West.

With the fall of the wall and then the collapse of the Soviet Union, this question was now one of what might be the relationship between a untied Germany and a new Russian state. When Putin became President of the Russian Federation in 2000, working this relationship was one of his key tasks, which he did with skill.

But his decision to invade Ukraine in 2022 brought his achievements crashing down,

The outbreak of war in Ukraine on February 24, 2022, marked the definitive end of one of Europe’s most significant economic partnerships. Germany’s relationship with Russia, built over decades through the policy of Ostpolitik and anchored in the principle of Wandel durch Handel (change through trade), collapsed virtually overnight.

What emerged was not just a geopolitical rupture, but an economic crisis that exposed the profound vulnerabilities of Germany’s energy-dependent industrial model and forced a complete reimagining of its foreign economic policy.

The Scale of Economic Devastation

The numbers tell a stark story of economic decoupling unprecedented in post-war European history. German exports to Russia plummeted by 67% between 2019 and 2023, falling from €32 billion to just €10.6 billion. Russia’s share of German exports collapsed from 2% to a mere 0.5%, effectively erasing what had been a significant trading relationship.

The sectoral impact was even more dramatic. Exports of cars and car parts to Russia declined by 94%, machinery exports fell by 76%, and electronic products dropped by 88%. These figures represent not just lost sales, but the destruction of carefully built supply chains and business relationships that had taken decades to establish.

Perhaps most painfully, prior substantial German investments in Russia totaling €25 billion were largely written off due to sanctions and forced business withdrawals. By the end of 2022, there were still 1,713 companies with Russian ultimate beneficial ownership operating in Germany, concentrated in strategic sectors like oil refining and natural gas distribution.

However, the broader investment relationship that had made Germany the third-largest investor in Russia after Cyprus and the Netherlands was effectively terminated.

The Energy Shock: From Dependence to Crisis

The most immediate and devastating impact was felt in Germany’s energy sector. Before the war, Germany’s dependence on Russian energy was profound. Just over 50% of its gas and coal, and more than 30% of its oil came from Russia. In 2021 specifically, Russia accounted for 55% of Germany’s gas imports, a level of dependency that would prove catastrophic when geopolitical tensions erupted into open warfare.

The German government moved with unprecedented speed to sever these energy ties. By September 2022, Germany had completely halted pipeline natural gas imports from Russia, while crude oil imports dropped to zero by August 2023. This represented one of the most rapid energy transitions in modern industrial history, achieved through what Chancellor Olaf Scholz termed the Zeitenwende which was a fundamental turning point in German foreign and security policy.

The economic shock was immediate and severe. Natural gas prices surged tenfold at their peak due to supply uncertainty and risk, creating cascading effects throughout the German economy. The disruption particularly hammered Germany’s energy-intensive industrial sectors, whose international competitiveness had long relied on access to relatively inexpensive Russian natural gas.

Industrial Reckoning and Economic Costs

The broader economic consequences have been staggering. Higher energy prices and trade disruptions cost the German economy at least €100 billion, equivalent to 2.5-4% of GDP. Germany experienced a recession in 2023, with the economy contracting by 0.3% and making it the worst-performing major economy globally that year. It became the only economy in the G7 to contract in 2023, a stark illustration of how deeply the Russian relationship had been embedded in Germany’s economic model.

German manufacturing, the backbone of the country’s export economy, found itself caught in a perfect storm. Rising input costs threatened international competitiveness just as global supply chains were being rewired to exclude Russian components and materials. Energy price hikes flowed through to broader consumer prices, contributing to a sustained period of elevated inflation that reached 8.0% in 2022.

The government and industry were forced into a frantic scramble to secure alternative energy sources, primarily liquefied natural gas (LNG) from new suppliers including the United States and Norway. Over the course of several months, Economy Minister Robert Habeck cut through bureaucratic red tape to build LNG terminals at unprecedented speed, moving Germany’s gas dependence on Russia from nearly 50% to almost zero.

The End of Ostpolitik

Beyond the immediate economic shock, the war fundamentally discredited Germany’s approach to Russia that had defined its foreign policy for half a century. The collapse of Ostpolitik, the eastern policy based on trade, energy ties, and extensive economic contacts, represented a profound ideological shift.

Since February 24, 2022, German-Russian relations declined precipitously, with support for Ukraine becoming a higher German priority than maintaining ties with Russia. This marked a complete reversal of decades of traditional Ostpolitik, which had been German policy toward Moscow for the past 50 years. The strategy of Wandel durch Handel was not only discredited in relation to Russia but also called into question Germany’s broader approach to authoritarian regimes, particularly China.

The psychological impact on German society was equally dramatic. German distrust of Russia reached a record 90% following the invasion, and by 2024, 95% of Germans disapproved of President Vladimir Putin. This represented one of the most complete reversals of public opinion toward a major power in modern German history.

Lingering Complexities and Hidden Connections

Despite the official severance of ties, the reality of energy flows remained more complex. Between 3% and 9.2% of Germany’s gas supply still originates from Russia, reaching the country through other EU members. German state-owned energy company SEFE purchased 58 cargos of Russian LNG via the French port of Dunkirk in 2024, marking a more than 500% increase from the previous year.

This highlights a fundamental challenge in completely decoupling from such deeply integrated economic relationships. Russian LNG imported via Belgium to Germany is labeled as gas from Belgium in official German import data, even though there is no such thing as Belgian gas. The imprecise bookkeeping allows EU member states to deflect responsibility for continued Russian energy imports while pointing fingers at neighboring countries.

Political Realignment and Future Uncertainties

The crisis has also reshaped German domestic politics in profound ways. The February 2025 German federal elections gave a majority to Friedrich Merz’s Christian Democratic Union (CDU), which has called for greater support for Ukraine and maintained a highly critical stance toward Russia. However, the rise of parties like the Alternative for Germany (AfD), which came second in the elections and maintains pro-Russian positions, suggests that German society remains divided on the appropriate response to the crisis.

Perhaps most tellingly, discussions about reevaluating energy and economic ties with Russia have already begun to reemerge as talks about negotiating an end to the war started in 2025. Some companies, especially in Germany’s energy-intensive sectors, have begun talking about resuming gas imports from Russia, suggesting that economic pressures may eventually challenge the political consensus for maintaining separation.

Long-Term Structural Implications

The war’s impact extends far beyond immediate economic losses. Higher baseline energy costs are expected to persist, acting as a long-term drag on certain German industries unless offset by innovation or transformation. The crisis has forced a rapid re-examination of German economic policy, with new priorities on reducing strategic vulnerabilities and increasing diversification, particularly in the energy sector.

Germany’s experience serves as a cautionary tale about the risks of deep economic interdependence with authoritarian regimes. The swift reduction in trade and energy decoupling exposed Germany to significant economic costs, forced difficult industrial adjustments, and made clear the dangers of overreliance on a single strategic partner.

The structural changes now underway from energy infrastructure to supply chain diversification will likely continue to impact German economic performance for years to come. The country that once believed economic integration could tame geopolitical rivalry now faces the challenge of rebuilding its industrial competitiveness while maintaining the strategic autonomy that the Russian crisis showed to be so essential.

As Germany enters this new era, the lessons of the Ukrainian war will undoubtedly influence not just its relationship with Russia, but its broader approach to economic partnerships with authoritarian powers worldwide.

The age of Wandel durch Handel is over; what replaces it will define Germany’s role in an increasingly fragmented global economy.