Explained: Why Is Germany Seizing Russian Energy Giant Rosneft's Assets?

Germany has taken control of the German business of Russian oil giant Rosneft Oil Co. The move comes at a time when Germany is running to safeguard its energy supplies before its ban on Russian oil imports kicks in later this year.

Russian oil major Rosneft PJSC has stated that the seizure of its German unit is illegal. Rosneft also added that they are considering all measures to protect ownership of the assets.

According to reports from the FT, the German government will seize control of Rosneft’s stakes in three German refineries — PCK in Schwedt, north-east of Berlin, MiRo in Karlsruhe and Bayernoil in the Bavarian town of Vohburg.

The move was unavoidable, said German Chancellor Olaf Scholz.

“We have known for a long time that Russia isn’t a reliable energy provider any more. That’s why it’s important to do everything we can now to safeguard Germany’s energy supply,” he added.

The business’s main asset is the PCK refinery in Schwedt, eastern Germany.

The PCK refinery in Schwedt, eastern Germany provides Berlin and the surrounding region with much of its gasoline and aircraft fuel.

"Berlin has had some success in finding alternatives to Russian crude, but the Schwedt plant presented a problem: not only does it sit right on top of a Russian pipeline, the 4,000km-long “Druzhba” or friendship line, but it is also 54 per cent owned by Rosneft, a company with little interest in refining non-Russian oil at the site," reads the FT report.

The German government has placed Rosneft stakes under the trusteeship of the federal energy regulator, the Bundesnetzagentur.

Rosneft’s Germany assets make up a total of around 12 per cent of the country’s oil-processing capacity, making it one of the largest oil-processing companies in the country, as per data from multiple reports.

This step is a significant escalation in the economic standoff with Russia as Germans seek to decouple themselves from decades of reliance on Moscow’s energy supplies.

Back in April, Berlin had placed Gazprom PJSC’s German natural-gas business, formerly known as Gazprom Germania GmbH, under trusteeship.

Now the question arises as to whether Schwedt will continue to receive Russian oil.

Some estimates suggest that without supplies, the refinery would have reserves for only three weeks. After those 3 weeks, Berlin's fuel supplies could run short.

There are existing pipelines that can provide Schwedt non-Russian oil. However, it won't be enough and the refinery won't be able to operate at capacity.

Expanding the capacity of pipelines is possible but it might take as long as 3 years, as per reports.

The economy ministry said that, "even if the PCK refinery is not producing at full capacity, the heating supply for the region around Schwedt is secured."

Germany is also in talks with Kazakhstan for oil deliveries, added the economy ministry.

Berlin considered the move of taking control of the Rosneft business after Western sanctions against Russia led to a situation where some banks and service providers stopped doing business with Rosneft, even though Rosneft isn't sanctioned.

This made it impossible for the refinery to keep operating.

The Schwedt refinery is located in a landlocked region near the Polish border.

It is amongst Germany's largest refineries. It has received crude from Russia since the 1960s. Now, as a part of EU's ban on Russian oil, Germany is supposed to stop importing Russian crude later this year.

The Schwedt refinery was a significant reason behind Germany's reluctance to accept the EU ban on Russian oil.

Thousands of jobs in the region depend on the refinery. The German government assured people that it would support the Schwedt refinery during the current turmoil and "work to transform the region."

Last month, Rosneft had warned that replacing Russian oil at its refineries will lead to a hike in fuel prices in Germany.

Germany's close energy relationship with the erstwhile USSR was driven not only by convenience but also by a desire to break free from its dependence on the US.

Even during the Cold War, Germany received hydrocarbons from USSR/Russia.

Now, with Germany seizing Rosneft's assets, it seems that this close energy relationship is coming apart at the seams.