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Photo: HANNIBAL HANSCHKE / REUTERS
As economists, we are not primarily concerned with moral arguments against Europe's decision to continue paying Russia for its oil and gas.
It is of course true that Vladimir Putin is using this money for his brutal war in Ukraine.
But since we are not German citizens, we cannot ask the German government to make decisions that entail significant costs for the German people.
However, as economists we are certain that a European embargo on Russian oil and gas is the quickest way to stop Putin's war in Europe.
Such an embargo would be costly, but the cost is manageable.
Leading German economists put the cost of an embargo at 0.5 to 3 percent of gross domestic product or around 120 to 1200 euros per capita, which corresponds to a moderately severe recession.
However, the recession is likely to be less severe than during the corona pandemic, for example.
Nobel laureate Paul Krugman agrees that such costs would be affordable for Germany.
Two other studies come to similar conclusions.
The first estimates that stopping Russian energy imports would result in a loss of income in Europe of about 1 percent.
Another study assumes that a complete decoupling of Russian gas would reduce economic output in the euro area by around two percent.
An analysis by the Bruegel think tank in Brussels also comes to the conclusion that Europe can get by without Russian gas next winter.
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The German government also has enough fiscal space to cushion the impact on German budgets - as it did during the Corona recession.
With winter almost over and households using less gas for heating, now is an ideal time to look for ways to quickly reduce gas consumption and store as much natural gas as possible for next winter.
Aren't the existing sanctions enough to stop Putin?
Since the war began, the West has shown great determination and imposed sweeping sanctions.
The Russian economy has been hit hard.
The ruble has lost 40 percent of its value.
The Russian stock market has basically ceased to exist.
Russian government bonds are trading at junk prices.
The central bank has raised its inflation forecast to 20 percent and Western companies have pulled out of Russia in large numbers.
Even the Russian currency reserves are subject to sanctions.
This formally froze half of the $630 billion war chest, one of the most important pillars of the economic "Fortress Russia."
But huge sums of more than 500 million euros per day still flow into the country, mainly from Europe as payments for energy supplies.
Oil and gas revenues are the most important source of the Russian budget.
In 2021, with significantly lower oil prices, oil and gas taxes accounted for 40 percent of the budget.
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The payments that Putin receives from the sale of Russian mineral resources are now and will be used to continue the war in Ukraine.
It's true that Putin pays his military and police officers in rubles, not euros.
But without the revenue from commodity exports, the Russian budget will slide massively into deficit.
So Putin will either have to cut the salaries of soldiers and officers or print money.
But printing money is dangerous.
Inflation is already very high at two percent a week and the export embargo will accelerate it considerably.
If Putin allows more rubles to be pumped into the system, inflation will continue to heat up.
In the event of an oil and gas embargo, falling foreign exchange earnings and accelerating inflation would undermine Putin's ability to maintain the purchasing power of police, bureaucrat and propagandist salaries.
But these groups are the mainstays of his repressive regime at home.
Is an embargo pointless as Putin will sell gas and oil to China?
Half of Russian oil exports and three quarters of gas exports go to Europe.
Full substitution by China and other countries is impossible given the limitations of transport infrastructure and the size of the European market.
More importantly, an embargo on Russia would reaffirm the West's determination and unity and create new options for action.
If Europe stopped doing business with Russian oil and gas, it would be much easier for the United States, for example, to impose so-called secondary sanctions on countries that continue to trade with Russia.
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Undeniably, an embargo will also hit ordinary Russians, whether they support Putin's war in Ukraine or not.
In a non-democratic regime, the burden of sanctions aimed at Putin and his friends is at least partly borne by the general public, as was the case after 2014.
But as long as Putin is in charge, he will use Russian tax revenues to bolster his repressive and propaganda machinery.
Putin wants to continue this war, which is economically devastating for both Ukraine and Russia and has already claimed thousands of lives.
On March 16, he even said at a meeting that he was aiming for a "final solution" in Ukraine.
It's hard to imagine what he means by that.
The best way to stop Putin's war of aggression is to deprive him of the funds to continue this war by banning imports.
Such an embargo would also have to last until Russia gives credible assurances that it will not undertake any further aggression in Ukraine or anywhere else.
If the embargo is not implemented quickly, the war in Ukraine, which is already causing high economic costs for Europe, will be prolonged.
In addition, one must also consider the costs of a possible further escalation of the war if other countries become involved in the conflict.
The embargo would deprive Putin of the financial means to continue the war and would massively weaken him domestically.
Any other political option is economically more costly and politically more dangerous.
