Modern East Germany’s dependence on Russian oil evokes old divisions

The logo of PCK Raffinerie GmbH oil processing plant. Photo: Sergey Kohl / Shutterstock

Since the days of the Cold War, crude oil piped in from Almetyevsk in in Tatarstan in Central Russia – 5,000 kilometres away flowing directly into the former Petrolchemisches Kombinat Schwedt or PCK – has been providing jobs for thousands of workers, as well as gasoline, jet fuel and heating oil for Berlin, Germany’s East and parts of Poland.

This industrial city on the Oder river to the east of Berlin owes much to the PCK refinery. After the Red Army’s advance decimated Schwedt in the last days of the Second World War, it was the refinery which helped the city rise again, transforming the village into a thriving model “socialist city”. After painful restructuring in the 1990s, the refinery gradually gave a region, made fragile by the reunification process, stability and self-confidence again. Manteufel’s husband, who had been trained at the refinery as a heating specialist, had fled communism in the 1980s to work in Bavaria. After the Berlin Wall fell, it was the refinery that lured him back to his native Uckermark, of which Schwedt is the biggest city, to launch OderGas, a small family-owned propane distribution business.

Not just any refinery

Yet now, Germany’s decision to go ahead with the European Union’s plans to stop importing crude oil from Russia by this coming January has thrown Manteufel’s life into limbo once again, and that of the region as well. For PCK is not just any refinery. The end point of a Cold War era oil pipeline called Druzhba (Friendship in Russian), it was configured to refine special crude oil from the Urals and remains entirely reliant on Russian oil. And since 2015, the business has been Russian owned, with 54.4 per cent of its stakes belonging to Rosneft, the Russian public oil giant close to the Kremlin.

The refinery is a symbol of the ties between Russia and the former East Germany during the Cold War, an anchor of jobs and identity since the 1990s, and now after February 24th in the eyes of Brussels and Berlin a sign of a dangerous dependence. For these last two groups, it is clear that these bonds have to be broken. That is why Berlin agreed to an embargo on Russian oil levied as part of an EU package of punitive sanctions against Vladimir Putin, despite massive opposition from regional politicians.

Yet in the Uckermark, one of Germany’s poorest regions where nine out of ten cars drive with Russian petrol and pretty much everybody is directly or indirectly connected to the refinery, the news of the embargo unleashed fear and social unrest, rekindling old wounds tied to the upheavals of reunification that never really healed. The embargo means “destroying a cheap, reliable and environmentally-friendly energy supply system while giving us the illusion that we are doing something to end the war,” said Manteufel on the eve of a televised public debate in the summer titled: “sanctions or jobs: what’s most important?”

“It is not by sending weapons to Ukraine, cutting Russian oil, ruining our economy and people’s lives that the war is going to end!” Manteufel adds. For her and the entire region the decades following reunification had been extremely difficult. It had taken a long time to rebuild, and for Manteufel’s family business to take off. There were personal challenges as well. Six years after he launched the company, Manteufel’s husband died accidentally, forcing her to leave her job as a schoolteacher and take over the company with the help of her two sons. This year she finally, although she is still paying off her loans for the big tankers, “reached the point where we could say, ‘we made it’”. She then added, “and now this! And it’s the East that has to pay again!”

The fear that the refinery would have to close once Russian oil stopped flowing brought the residents out onto the streets. Twice since the spring Germany’s Economic Minister Robert Habeck had come to Schwedt, to reassure residents that Berlin would not let the refinery down, but he was greeted with boos.

“When I heard Habeck, I was taken back 32 years,” Kraus Schreiber, a local master baker who also heads a regional crafts and trades organisation said to wide applause that hot August 30th evening. In a letter Schreiber sent to German Chancellor Olaf Scholz in the name of local crafts people, from hairdressers to bakers that is yet to receive an answer, he demanded an end to the sanctions against Russia and a halt to weapons shipments to Ukraine. The main argument was that Germany’s “ambitious and ideological energy policies are sacrificing the social peace of our country”. A government taskforce was set up “for the future of Schwedt”, which included politicians and local businesspeople. However, it failed to bring conclusive results.

Residents demanded written proof that the refinery would not die. Helmut Kohl, the chancellor of reunification, had also made promises in the 1990s to “transform Mecklenburg-Western Pomerania and Saxony-Anhalt, Brandenburg, Saxony and Thuringia into flourishing landscapes where life is good,” said Schreiber. But what many people here remember most perhaps are the massive layoffs, East German groups taken over by West German firms, the cities emptied of their populations, lives shattered and the feeling of not being heard or talked to. “Promises are just empty words,” he said. “Let’s tell the politicians: We don’t follow you anymore!”

Concrete solution?

On September 16th, Habeck came back to Schwedt, this time with his boss, Chancellor Scholz, and with a concrete answer. Berlin had seized the assets of Rosneft’s German subsidiary in PCK and the two southern Germany refineries it holds minority stakes in, Miro and Bayernoil. Scholz said that with the Schwedt refinery under the trusteeship of the Bundesnetzagentur, Germany’s energy regulator, Berlin’s hands would be free to keep the refinery and its 1,200 jobs afloat, and to secure the energy security of the country. Berlin would invest 825 million euros in and around the refinery. It would upgrade an existing oil pipeline from the port of Rostock on the Baltic Sea so it could transport non-Russian crude. The alternative oil would be brought by tankers there. Poland would help, providing oil through Gdansk.

“Nobody has to fear for their jobs,” Scholz told hundreds of workers assembled in a packed cafeteria of the PCK refinery, which stretches for kilometers in what used to be forest land. When a sceptical worker asked about this “F… embargo” Scholz responded calmly that embargo or not, Vladimir Putin could do with PCK what he had done with Gazprom and Nord Stream One, that is turn off the oil tap; and that suppliers, insurance companies, banks, IT companies were increasingly reluctant to work with the refinery as long as it had ties with Russia’s Rosneft. “We know that Russia is not a reliable partner anymore.”

Schwedt’s Social Democratic mayor, Annekathrin Hoppe, breathed a sigh of relief, as did union representatives. Yet Gabriele Manteufel called the government’s seizing Rosneft’s stakes in the refinery a “smoke and mirrors” measure meant to appease workers that will only drive up inflation and bring companies to the brink of bankruptcy. But, she also said, it will fail to address the key question: how to source 12 million barrels of oil coming through the refinery each year? Not getting enough oil would force her to get propane trucked to her, a prohibitively expensive initiative. Down the line, that could choke the family business.

In socialist times, Klaus Schreiber had been a math teacher. After the Berlin Wall fell, he brought his parent’s old family bakery the German Democratic Republic had let rot back to life, took loans he is still paying off and, little by little, created two bakeries. He calls Scholz’s handling of the refinery a slap in the face of all those who, like him, rolled up their sleeves after reunification, creating businesses and recreated their lives.

Germany’s contradictory energy policy?

The debate over the future of PCK lays bare the contradictions and dilemmas involved in Germany’s energy policy as the country struggles to battle its most serious energy crisis since the Second World War while simultaneously managing its green transition. The situation reveals how differently Germany’s East and West perceive the war in Ukraine and how to deal with it, a sign of how, more than three decades after the fall of the Berlin Wall, the country remains deeply divided.

For the decades following the Second World War, Germany relied on cheap Soviet gas, oil and coal to power its heavy industry, insisting that doing business with the Kremlin would only improve relationships with Moscow. Berlin’s reliance on Russian fossil fuels only grew in recent years, a way to offset the country’s effort to wean itself off nuclear and coal energy.

“This reliance could be justified at a time when it was thought that commercial relationships with Russia would bring peaceful change, including democratic change in Russia,” said Thomas Pellerin-Carlin, head of energy at the Jacques Delors Institute, an independent think tank in Paris. “But at the very latest in 2014, one should have seen that this policy of ‘change through commerce’ did not work.” Today, Germany is paying the price for “putting itself at systemic risk … and never investing a euro to deal with that risk,” adds Thierry Bros, a professor at Sciences Po Paris specialising in energy issues. “The wake-up call is hard.”

Deep ties

It is especially difficult in the country’s economically fragile East, to where most of the oil imported from Russia flows. Nowhere is Russia’s encroachment into the country’s energy landscape as profound and visible as in Schwedt on the Oder river, a city of roughly 30,000 to the east of Berlin. The efforts to move away from it are painful and contested. Schwedt and the region’s energy infrastructure remain directly linked to that of the former Soviet Union, which makes getting oil from other providers difficult.

Schwedt’s ties to Russia’s “black gold” run deep. Schwedt grew and shrank with the refinery. It was but a rubble of ruins with 8,000 inhabitants in 1958 when East German leaders chose it as the site of the country’s first oil refinery, mainly because of its location. It was one hour from Berlin, next to the Oder River and close to Poland, where a soon-to-be-built pipeline supplying crude oil to the region would run. Socialist leaders envisioned something big. Schwedt, with its refinery, would be like Eisenhüttenstadt (then called Stalinstadt), the first “socialist city” the party had created a few years prior around a gigantic steel factory not far away. Schwedt and Stalinstadt were to catapult East Germany into the industrial age, showcasing the socialist state’s modernity.

Today still, residents remember the euphoria as workers and their families moved here by the tens of thousands in the years that followed. The main driver was the construction of the Druzhba Pipeline, a joint effort to bring crude oil to “fraternal socialist people” including Poland, Hungary and then-Czechoslovakia in 1958, heralding a booming era for the region. Helmut Zahn, a local fisherman, remembers the busloads of “tourists” arriving from all over the German Democratic Republic to visit the “socialist model city”. He also remembers the shock and trauma of reunification, when entire streets and districts of the town were razed and turned into green fields. He is proud that PCK, which counts a bit more than a thousand workers down from 8,000 in the 1980s, survived to become one of Germany’s most modern refineries.

“What we went through in the 1990s is happening again,” he says. To him, Berlin is “sacrificing” the region just as it did after the wall fell. “It is time that we create an independent East German republic,” he argues. “We have to get out of NATO, out of the EU.”

That Rosneft, the Russian oil giant, gradually gained control of the Schwedt refinery after buying up TotalEnergies’s 16.6 per cent stake one year after the illegal annexation of Crimea in 2014, did not seem to raise eyebrows until very recently, and that was mostly outside of the Schwedt region. Six years later, in 2021, Shell tried to sell its 37.5%per cent of PCK shares to Vienna-based Alcmene, which is owned by Estonia’s Liwathon Group. However, Rosneft opposed the deal and moved to acquire them to secure a 92 per cent majority in the refinery. The deal received the blessing of Germany’s antitrust authorities — and that of top politicians, including Minister President Dietmanr Woidke on February 21st 2022, three days before Vladimir Putin’s tanks rolled into Ukraine.

Since then and in the wake of the war, Berlin has put the deal on hold. To Pellerin-Carlin of the Jacques Delors Institute, Rosneft’s journey in Schwedt fits into an “overall strategy on the part of Russian oil companies to acquire strategic assets in Germany and the German government’s failing to react to this, out of naivety and greed”. Shortly after the invasion of Ukraine, Habeck said that “we are paying a price for letting Rosneft gain control of the refinery.”

Soviet heritage and sanctions protests

Yet, while the current anti-Putin sanctions have broad support in Germany as a whole, they are widely unpopular in Germany’s former East. The refinery being the lifeblood of this fragile region partly explains why. Why did Berlin not do the same as Hungary, the Czech Republic and Slovakia, which are also linked to the Druzhba Pipeline, and negotiate a temporary exemption from the import ban, asked Uckermark Christian Democrat PM Karina Dörk this summer. OderGas CEO Gabriele Manteufel says that she does not sympathise with Putin but asks, “if it is not Germany, won’t it be India and China that will buy Russia’s crude to resell the refined fuel to Europeans?”

However, there is the significant factor of Soviet heritage and East German ties with Russia, which also explains the local scepticism of Berlin’s sanctions. South of Schwedt on the Oder river in Eisenhüttenstadt, one feels close to Schwedt residents’ anxieties over the future of the refinery. “The experience of having lost everything after the fall of the wall is omnipresent today,” says Michael Reh, a native from East Germany’s first “socialist city” who is now responsible for its business development. In a way, Schwedt and Eisenhüttenstadt share similar fates. As with Schwedt and its refinery, Eisenhüttenstadt and its gigantic steel factory EKO along the Oder Spree Canal, today only a fraction of the size from the heyday of socialism, was the pride of socialist Germany. In both cities, residents experienced loss after the reunification, of homes, jobs and identity.

Today, the refinery and the steel complex, now owned by giant Arcelor Mittal, remain the region’s number one employer. At the same time, energy-hungry industries are hit hard as a result of the aftereffects of Russia’s invasion. Skyrocketing energy prices recently forced Arcelor Mittal to furlough many of its Eisenhüttenstadt workers.

“Politicians say that the future of the refinery is safe, but who believes that?” asks Reh from his office at a city hall constructed in the imposing socialist realist style of Germany’s “first socialist city”. “The refinery was born because of the Druzhba Pipeline. If you cut the flow, there’s a structural problem.”

“Schwedt depends on the refinery just as much as we depend on EKO, and that is something that unites us,” Reh adds. “We are told: ‘we’re going to live without gas and coal, and we’re going to do that tomorrow,’ but at what price? Are we going to run our factory with wind and solar energy?”

From Schwedt to Frankfurt on the Oder to Eisenhüttenstadt, mistrust of Scholz and his government runs deep. There is a sense that the government is endangering the region’s existence just as, in their eyes, it had in the 1990s. Pegged to this mistrust is a bigger scepticism towards the West and the United States in particular. “In the West people look towards the Americans, here in the East we have a different relationship with Moscow,” explains Gabriele Manteufel. Michael Reh complains about what he sees as Berlin’s “ideological energy policy”. “This is what we went through in East Germany, and we know where it all led to: it failed,” he says. After the Berlin Wall fell, few industries survived, and those that survived need energy.

Manteufel in Schwedt and Reh in Eisenhüttenstadt are fearful. They worry about social unrest. With the war, they say, the rift between Germany’s East and West is getting wider again. “The social peace is in danger.”

No good solution

Meanwhile, people’s discontent has been seized on by populists on the right and left. The hard right Alternative for Germany (AfD) has rallied people into taking part in “Monday demonstrations” similar to the anti-migrant Pegida demonstrations that shook Saxony in 2015. On a recent Monday, more than 10,000 residents took to the streets in various cities of Germany’s former East. The posters they carried proclaim their message: “If PCK dies, so does Schwedt”; “No to a government that takes us to the abyss”; “Yes to PCK, No to the USA”; “No to war mongering, no to Russian sanctions.”

From her office close to Lindenallee – the former Stalin Street – Schwedt Mayor Annekathrin Hoppe points to the flame on top of the refinery in the distance, in what used to be a forest. It is the refinery’s flare. “As long as that flame is burning, the refinery is working and people feel safe,” she says.

But how long will the flame continue to burn? Keeping the refinery running is a herculean task. Will that happen up to the year’s end? Upgrading the Rostock pipeline so it can carry enough crude oil to make the refinery work will take a long time. The oil would have to be transported to Rostock by tankers, and the port brought up to standard to accommodate the new traffic. But where will it come from? Imported oil from Kazakhstan via Druzhba is an option, but belligerent Russia could stand in the way.

 “There is no good solution,” says Thierry Bros, the energy expert in Paris. “The good solution would have been not to let the Russians take too much power in the refinery.”

Some, like Uckermark native Michael Kellner (The Greens) from the Economy Ministry, say the trouble with Russia could also be a chance, an incentive for the region to transform itself. And indeed, part of the money Olaf Scholz promised the region in September will go to attracting start-ups and research centres that will work toward replacing crude oil with “green oil”.

Isabelle de Pommereau is a journalist and reporter. Originally from France, she is based in Frankfurt and works as a correspondent for the Christian Science Monitor, Deutsche Welle and Alternatives Economiques.

former East Germany, Germany, oil, Russian sanctions