Russia squeezes Germany over gas

This is an audio transcript of the FT News Briefing podcast episode: Russia squeezes Germany over gas

Marc Filippino
Good morning from the Financial Times. Today is Thursday, March 31st, and this is your FT News Briefing.

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The world’s biggest tech investor is scrambling to raise cash. Author Catherine Belton talks about the impact sanctions are having on Russian oligarchs, and we’ll find out about Moscow’s threat to halt gas deliveries to Europe.

Martin Arnold
It’s a way for Russia to flex its muscles for Putin and the Kremlin to say to European governments, take it easy on your plans to keep ramping up sanctions because we have economic weapons of our own.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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The FT has learned that SoftBank founder Masayoshi Son warned top executives to slow down further investments. He made these comments at a meeting this month. This comes as the world’s biggest tech investor is struggling to raise cash. SoftBank’s taken a beating by the rout in tech stocks. Tech shares have plummeted as interest rates have gone up and also because of the war in Ukraine. But over the past year, SoftBank’s stock price has halved. It’s also been hit by a tech crackdown in China that’s crushed the values of Chinese companies listed overseas. SoftBank was a huge investor in companies like Alibaba and Didi Global.

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Europe’s energy war with Russia is taking a tough toll on Germany, and things could get even tougher. The country is now bracing for a gas emergency in case Russia halts deliveries. The countries are at odds over how to pay for the gas. I’m joined now by the FT’s Frankfurt bureau chief, Martin Arnold. Hey, Martin.

Martin Arnold
Hi, Marc.

Marc Filippino
Martin, the dispute is over what currency to use, right? Moscow wants to be paid in its own currency.

Martin Arnold
That’s nominally what it’s about. Moscow has said that it wants European countries to pay in roubles. So far, Europe has rejected this demand from Russia, saying that it’s in breach of contract.

Marc Filippino
So can you remind us why Russia wants to be paid in roubles, especially since the currency is so weak now? It’s so depleted.

Martin Arnold
Well, it’s interesting, you say, why would they want this given how depleted its currency is? It’s exactly because of that. If it was to force the EU to buy roubles in order to pay for its energy bill, then that would boost the rouble. Another reason is it could force European countries to buy roubles from Russia’s central bank in order to pay for their energy, and that would force them to do business with an entity that western governments have sanctioned. So this would be a way for Russia to force Europe to undo its own sanctions.

Marc Filippino
So it’s pretty strategic. So Martin, you said that the currency dispute is nominally what this whole gas thing is about. What is it really about then?

Martin Arnold
Well, it’s a power play. It’s a way for Russia to flex its muscles and to remind Europe how dependent it is on Russian, not just gas exports but also oil and coal. So this is a way for Putin and the Kremlin to say to European governments, you know, look, take it easy on your plans to keep ramping up sanctions because we have economic weapons of our own.

Marc Filippino
So if deliveries were halted and Germany were to go into a gas emergency, what would this mean? Not just how it would work, but for the economy, for Germans, what would this mean?

Martin Arnold
Well, that would have a massive impact on the European economy. Already, we’ve seen this week that Germany and Austria have taken the first steps towards gas rationing because they’re preparing for a potential halt in deliveries from Russia. This would, particularly in somewhere like Germany, which is the industrial heartland of Europe, where gas is not only used for electricity production, it’s also used for industrial heating and cooling. It’s used in the manufacture of most chemicals, and it’s also used obviously for household heating. Now, if there was a shortage of gas, economists don’t think Germany could find alternative sources. The German chancellor, Olaf Scholz, has already said that it could push all of Europe into a recession this year, so it’s very serious, what’s at stake here.

Marc Filippino
Yeah, I wanna keep talking about that a little bit because you did just report that Germany is already at a 40-year high when it comes to inflation. You know, how would this exacerbate that?

Martin Arnold
Massively, massively. The Council of Economic Experts, which is a group of German economists who advise the government, put out a set of forecasts on Wednesday in which they slashed their forecasts for growth, but they raised their forecasts quite dramatically for inflation. But they were asked about the impact of a potential cut-off in Russian gas supplies, and they said that it could push inflation up to 9 per cent. And some economists are already talking about the potential for double digit levels of inflation, which would be higher than we saw even in the 1970s oil crisis. So that would really be pushing, you know, the highest in several generations here in Germany, which is a country that has a long, deep-seated fear of inflation because of past episodes of hyperinflation that it suffered between the two world wars.

Marc Filippino
Martin Arnold is the FT’s Frankfurt bureau chief. Thanks, Martin.

Martin Arnold
Thanks, Marc.

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Marc Filippino
Western sanctions have also targeted wealthy Russians with close ties to the Kremlin. They’re often referred to as oligarchs. Hundreds have been hit by travel bans, banking bans and asset freezes. Catherine Belton is a former FT journalist and author of the book Putin’s People. She says oligarchs are rattled by these sanctions.

Catherine Belton
They were able to create enormous wealth for themselves as long as they stayed on the right side of the Kremlin and did favours for Putin every now and then and carried out this net strategic task. But then Putin just uprooted that and destroyed an entire system, which had been built over 30 years. Everything was destroyed overnight, and these oligarchs are going through an existential crisis. I mean, all their networks abroad are being undermined. No one can do business with them any more. They can’t even speak to some of their former allies, and they’ve spent millions burnishing their reputation in the west.

Marc Filippino
Belton believes the sanctions will have an impact on Russia’s leaders.

Catherine Belton
One thing that we’ve learned that has been important for the Kremlin is to have instruments of soft power to influence western opinion. And when some of the frontmen in these operations, such as the so-called oligarchs, have been personally targeted, this creates a systemic risk for Putin in that you know, if he’s there as the guarantor of stability, he’s there sort of to help promote Russia’s standing in the world, which is what his role has always been — all that’s been undermined. And that means that systemically he will face a backlash. Although it’s unlikely to come from somebody like Deripaska or an individual oligarch, it will come from within the system, from people who see themselves as guardians of the Russian state.

Marc Filippino
Deripaska there being the metals tycoon Oleg Deripaska. Another oligarch especially well-known in the UK is Chelsea Football Club owner Roman Abramovich. He’s now gotten involved in peace talks between Russia and Ukraine. Belton suggests he may be motivated by sanctions, though Ukraine’s president Volodymyr Zelensky downplayed his influence.

Catherine Belton
President Zelensky, when he was speaking with Russian journalists over the weekend, downplayed any role for Abramovich. He said that he’d been part of the talks as part of a subgroup in talks. At the very beginning, he was very anxious to downplay any role for him. And yet we still have all over the pages of the UK press about how he’s been flying back and forth between Kyiv, Lviv and Turkey, have undertaken all these talks to bring peace. And clearly, he’s desperate to be seen to be playing a role. And also for these oligarchs, perhaps the only way to get sanctions lifted is to help bring an end to the war, but quite how they do that is another matter.

Marc Filippino
Catherine Belton is the author of the book Putin’s People. She spoke to the FT’s Gideon Rachman. You can hear the full interview on the new episode of Rachman Review, which drops today.

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One of the things we love to do here at the News Briefing is we talk to the people behind the bylines, like our amazing markets editor, Katie Martin.

Katie Martin
I joined the FT seven years ago. I still feel slightly new because there’s a lot of incredibly talented people here who stick around for a really long time. And I guess that’s what drew me here is just, you know, to work with some of the most talented people in the business. My view of markets is that to a lot of people, they look really intimidating. You know, the ups and downs of stocks and bonds and currencies and commodities looks confusing. And the truth is that actually, there’s always an important story to tell that matters to everyone. And it doesn’t matter if you’re a professional investor running a hedge fund or just somebody who cares about what happens with the savings and investments that they’re squirrelling away. And our job is to demystify that. It’s about ultimately identifying all the stuff that goes into how markets tick.

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Marc Filippino
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