If you follow the rhetoric of Chancellor Olaf Scholz (SPD) and Foreign Minister Annalena Baerbock (Greens), who accuse Russian President Vladimir Putin of using his energy reserves as a weapon, then you have to realize that Putin has just launched another effective attack. After the stop of Russian gas supplies through the Nord Stream 1 Baltic Sea pipeline, energy prices in Europe have skyrocketed. Once again.
The exchange gas price rose on Monday by up to 35 percent. It only fell sharply last week after Economics Minister Robert Habeck (Greens) announced that Germany was making surprisingly quick progress in building up its gas reserves. The ups and downs on the gas market are not only unsettling for citizens, some in the economy are now also fearing a deep recession as a result of energy rationing.
Because they are linked to the gas market, electricity prices also rose sharply again. The Russian state-owned company Gazprom announced on Friday evening that Nord Stream 1 would not be put back into operation for the time being after alleged maintenance work. It was said that an oil leak had been discovered in a turbine. The Federal Network Agency and the manufacturer Siemens contradicted this representation.
Europe’s politicians have been preparing for a disruption in gas supplies for weeks. Emergency measures are now being taken in more and more countries. Sweden and Finland set up protective shields for their utilities over the weekend. The German federal government presented a 65 billion euro relief package against inflation.
The EU energy ministers want to lower the high electricity prices
The energy ministers of the EU want to discuss radical proposals to lower electricity prices at a special meeting on Friday. According to one draft, this includes price caps for natural gas and the suspension of trading in electricity derivatives. A major concern is that the gas ban could further increase inflation, which is already at its highest level in decades. This could push many households in Europe into poverty and possibly even trigger social unrest.
The EU has been stockpiling gas, but stocks could run out towards the end of the heating season, especially if a cold spell hits. “Given the tight gas supply, one cannot rule out the possibility of mandatory gas restrictions for non-essential industries this winter, weather permitting,” said an analysis by investment bank JP Morgan.
After an Opec+ meeting, oil prices also rose sharply over the course of Monday. The cartel of the largest oil-producing nations and Russia decided in the afternoon to cut their joint oil production by 100,000 barrels a day in October. This is intended to support the last fallen price. The step is politically sensitive, especially for Saudi Arabia. Because the cut means an abrupt end to the expansion of production in recent months, which was primarily understood as a gesture to American President Joe Biden. Biden had specifically visited the Saudi Crown Prince Mohammed bin Salman in July to promote an expansion of funding.
Saudi Arabia had already announced possible restrictions on oil production
Saudi Energy Minister Abdulaziz bin Salman had already warned last week that production cuts could become necessary because stock market prices had decoupled from reality. Observers took the statement as a clear announcement that Saudi Arabia would not accept oil prices below $90 a barrel. Saudi Arabia is considered the most influential member of Opec.
Rising gas, electricity and oil prices – this mixture caused the European stock exchanges to collapse on Monday. Wall Street was closed for a holiday. The German stock market index Dax lost more than three percent at times. Prices recovered slightly over the course of the day. In particular, companies that require a lot of energy fell sharply in value. Electricity companies also suffered from the announcement by the federal government that they would skim off high profits. The leading euro zone index, the EuroStoxx 50, lost 2.6 percent. “The fear of a Lehman-like crisis in the European energy sector is growing,” said analyst Jochen Stanzl from the online broker CMC Markets. He was alluding to the bankruptcy of the investment bank Lehman Brothers in 2008, which triggered a devastating chain reaction in the financial world.
The euro also came under pressure. On Monday morning, the common currency fell as low as $0.9881, its lowest level in almost 20 years. The last time a euro cost less was at the end of 2002.