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Business 08 Sep, 2022 Follow News


By Staff Writer

Global energy prices already projected to rise more than 50 per cent this year suffered another shock this week as Russia announced a further squeeze on its gas exports to Europe.

Gas prices spiked up to 30 per cent after Russia announced that it will keep a key gas pipeline to Europe closed for an indefinite period to carry out “urgent repairs”.

That has been disputed by EU governments, especially those heavily dependent on Russian energy exports, who accuse the Kremlin of “energy blackmail” and “weaponising” global energy supplies.

Moscow in turn has placed the blame on western countries accusing them of conducting economic warfare.

The EU and several other major western governments including the United Kingdom and the United States have slapped severe economic sanctions on Russia for its invasion and the ongoing war in Ukraine.

But while debate rages over how effective these have been as Russia has been able to benefit from high global oil and gas demands for which it’s a major exporter.

Experts say while countries such as the UK and US are less vulnerable to the immediate price shocks caused by Russia’s move this week, the impact on the global energy markets will still be severe.

With the onset of winter and citizens facing a worsening impact on their household budgets from already energy price hikes, many governments are moving to put measures in place to alleviate the pressure on their populations and businesses.

Some European governments have unveiled plans to help businesses and consumers cope with surging energy costs. Germany announced a support package which includes one-off payments to the most vulnerable and tax breaks to energy-intensive firms. Sweden and Finland also announced multi-billion pound relief packages to their energy companies.

In its last Commodity Markets Outlook report, the World Bank stated: “While prices generally are expected to peak in 2022, they are to remain much higher than previously forecast. The outlook for commodity markets depends heavily on the duration of the war in Ukraine and the severity of disruptions to commodity flows, with a key risk that commodity prices could be higher for longer.”

The war in Ukraine is a major disruptive factor, with the reporting pointing out that previous oil price hikes led to the emergence of new sources of supply and reduced demand through efficiency improvements and substitution of other commodities.

But that has now changed.

The World Bank said: “For policymakers, a short-term priority is to provide targeted support to poorer households facing higher food and energy prices.”

It also proposed that “over the longer term, they can encourage energy efficiency improvements, facilitate investment in new sources of zero-carbon energy, and promote more efficient food production.”

However, it said, “policy responses have tended to favour trade restrictions, price controls, and subsidies, which are likely to exacerbate shortages.”

In the interim western governments have committed to remaining steadfast in applying pressure on Russia while intensifying efforts to find alternative energy supplies and options.

While this week’s last move by Russia pushed up gas prices across the EU by 30 per cent, a prolonged closure of the key gas pipeline it shut was expected to have further downstream knock-on effects with deeper price implications for the global energy markets.

The LNG (liquified natural gas) market already under pressure due to the huge demands coming on the back of the COVID-19 pandemic shutdown, was expected to be further squeezed.

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