“This is just the beginning”

Written by The Frontier Post

Natalia Dembinskaya

The European Union was doing its best to reduce energy dependence, when it suddenly became clear that the industry was critically short of cheap Russian energy sources. Prices are at highs, and deliveries, as Moscow has already demonstrated, can stop at any moment. Factories are curtailing production one by one. Who went down the drain and which industries were particularly affected by the new energy policy of Brussels – in the material of RIA Novosti.
Inflationary shock
Energy resources in the EU have risen in price by 50% since the beginning of the year and reached 13-year highs. Inflation is on the rise. In May, 19 eurozone countries recorded a record: 8.1%. First of all, at the expense of energy carriers (39.2%, in April it was 37.5%), food products, alcohol and tobacco products, industrial goods.
In Estonia, Latvia, Lithuania and even more: 20.1%, 18.5, 16.4. In the largest economies – Germany and France – 8.7 and 5.8. For Germany – a half-century maximum.
Such indicators are a direct consequence of sanctions against Moscow and a partial ban on Russian oil and gas. In June, Brussels imposed an embargo on pipeline imports of black gold, but did not dare to completely abandon hydrocarbons. Shipments by sea continue. However, this was too costly. Both consumers and industry are paying. Europeans are covered by “fuel poverty”.
Observers state that the EU economy is close to disaster, and the inflationary tsunami in consumer markets is only at the very beginning. A sharp rise in the index of producer tariffs indicates further price growth: 36.8% in annual terms.
Spiegel believes that a partial embargo on Russian oil, introduced by the European Union as part of the sixth package of sanctions, will result in a “price shock”, higher interest rates, a drop in income and purchasing power of the population.
According to Guntram Wolff, director of the Bruegel research center, inflationary pressures will continue to increase and the situation on the markets will worsen.
In sequence
Back in the fall, gas prices hit the European chemical industry hard. The Norwegian company Yara International ASA reduced the output of mineral fertilizers by 40%. The British CF Industries closed two factories, and the German BASF SE also shut down some facilities.
Now, according to The Wall Street Journal, others have followed suit. Several enterprises that have been using cheap Russian oil for decades have immediately suspended production, as they cannot cope with inc-reased energy costs. It takes a lot of effort to find an alternative to “toxic” energy carriers. If Moscow co-mpletely cuts off gas supplies, everything will stop.
“Gazprom” has already turned the valve for Bulgaria, Finland and Poland – because they refused to pay in rubles. But Russia’s share in EU gas imports is about 40%.
In May, Italian Minister for Ecological Transition Roberto Cingolani called for temporary permission to pay in rubles “while the EU sorts out the legal framework and the consequences.” And on June 15, the Italian Eni reported that it had received a notification from Gazprom about the reduction in supplies. The reasons are not disclosed.
Domino effect
Now energy prices in the US, the Middle East and other regions are much lower than in Europe. For example, gas in the EU is almost three times more expensive than in the US market. Therefore, European enterprises are not able to compete.
The new conditions were felt in all industries, but the chemical industry was especially affected. So, according to the director of OCI NV Ahmed El-Hoshi, the company has reduced the production of ammonia at a plant in the Netherlands and now imports it from the US, Egypt and Algeria.
The Ince plant, one of the largest in the nitrogen fertilizer market, has closed in the UK. The owner of CF Fertilisers warned that this could disrupt food supply chains.
Inflation in the United Kingdom hit a 40-year high in May, hitting nine percent, according to the Bureau for National Statistics. In total, according to Make UK (manufacturing industry federation), 17% of British companies have cut “output of energy-intensive products.”
Metallurgists are also suffering. Since March, ArcelorMittal has been shutting down steel mills during peak hours, about a third of working hours. Acerinox has closed its only factory in Spain, in Algeciras.
Spanish-headquartered steel holding Celsa is about to “put on pause” a plant in Barcelona with an annual capacity of 2.5 million tons.
In Europe, they are preparing for gas rationing, fearing that “Putin will cut off the pipe.” After Gazprom reported on the reduction in Nord Stream, blue fuel quotes rose above 1,200 euros per thousand cubic meters. According to all forecasts, high energy costs can collapse industrial production in the EU and undermine economic growth.

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