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Germans cool to escalating conflict surrounding Russia

Closely entwined economically with Russia, Germany is a pivotal player in the West's standoff with Russia.

But in business circles in the country's capital city, there appears to be a low level of concern for now that it will impact the German economy as there is little appetite to accelerate sanctions against Russia for the invasion and annexation of Crimea.

"The frigid winds that are now blowing may feel like the Cold War but it's not the Cold War," said Daniel Yergin, vice chairman of IHS. Yergin was in Berlin to present a report on German competitiveness and energy.

German Chancellor Angela Merkel and Russian President Vladimir Putin attend a press conference during the Saint Petersburg International Economic Forum in June 2013.
Sasha Mordovets | Getty Images

While 6,000 German companies do business in Russia, energy and manufacturers are at the heart of the relationship. Germany gets about 35 percent of its gas from Russia and about half of it flows from pipelines crossing Ukraine.

"What's unsettlng is not only what happened but if there's risk of inadvertent escalation," Yergin said.

Other business leaders and former political figures speaking on background in Germany stress the situation is the most serious since the Cold War and say they are looking for a diplomatic solution.

The question has become for Washington and Europe how much further sanctions should go and how much leverage is there. This week the West limited travel and froze funds of individuals identified as key players in Ukraine and Russia.

(Read more: Europe 'held hostage' by Russian nat gas: Hamm)

In financial circles, the situation is being carefully watched. On Tuesday, the German ZEW monthly indicator of economic sentiment fell to a surprisingly low March reading of 46.6 from 55.7 in February. It was expected to come in at 53.0.

"It's compiled among financial market investors. We're sensitive to things like this but this isn't the real economy. Events like this would affect sentiment but not distract the real economy," said Holger Fahrinkrug, chief economist for Germany at BNY Mellon's Meriten Investment Group.

(Read more: US warns Moscow is on 'dark path' to isolation)

Fahrinkrug commented after speaking before the Financial Women's Association of New York, in Berlin for its annual international conference. Yergin also spoke before the group.

Fahrinkrug said the picture would obviously change if sanctions or actions accelerated.

Santelli Exchange: Germany's energy crisis

European business leaders are watching.

(Read more: Markets have yet to deliver verdict on Ukraine)

"On a personal note, I do hope the situation will not worsen any further and I would hope all parties involved including Russia would return to the negotiating table as soon as possible," said Christine Hohmann-Dennhardt, member of the board of management at Daimler for integrity and legal affairs.

Hohmann-Dennhardt was speaking to the FWA at a meeting in Daimler's Berlin office.

"I think I feel about this the same as you. We are quite horrified in the light of this confliict," she said.

One former high-ranking German official, in a separate meeting and interview, said the situation is very serious and the path will become more clear as to severity within the next week. He also stressed that nobody is talking about military intervention.

Camille Fohl, chairman of the management board Germany at BNP Paribas also spoke before the FWA gathering. "To me as long as people are speaking together, there is hope," he said in an interview.

The European Union meets later this week and the Group of Seven meets in The Hague next week.

Fohl is focused on expanding BNP's business in Germany, where last year the company added 500 employees for a total workforce of 4,000. He said BNP—in Germany since 1947—has the No. 1 securities services and real estate businesses in the country.

Many midsized businesses have ties to Russia.

(Watch: Germany: Investors nervous about future)

"Yes, it is an important partner but everyone is concerned and conscious about the far-reaching political meaning of this crisis," Fohl said.

Yergin, in an interview, said he has been discussing his report on German's energy position in Berlin this week with officials and business. German energy is far costlier than that in the U.S.

"It's now reached a state of high alarm in the German business community and it's now become a political issue," said Yergin of energy competitiveness. "The high-cost energy system has now become a drag on the economy and it's recognized by the unions as well as the business community."

Yergin said the Germans have embarked on a rapid move to renewables which proved more expensive than a few years ago. "The assumptions behind the current energy was that prices would go higher and higher and the shale gas revolution has upended that view and made the U.S. more attractive as a place to manufacture," he added.

(Read more: Think US nat gas can threaten Russia? Think again)

In its report, IHS suggests shale gas drilling, widely opposed in Europe, could be a potent source of energy if Germany chose to pursue potential fields.

Yergin said that debate about shale is likely to heat up as has the discussion about further gas and now oil exports from the U.S.

In a new report, released Wednesday, IHS said it does not foresee a cutoff of Russian gas supply to Europe.

It said the most likely scenario for now is one in which Russia retains Crimea but does not escalate with a military presence into other regions of Ukraine.

—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.