“Anything can happen” – Now there was a really boring forecast about energy prices

Former director of the Directorate-General for Macroprudential Policy and Financial Stability of the European Central Bank ECB, researcher and economist at Bocconi University Ignazio Angeloni and the Italian Minister of Defense Guido Crosetto warn in exceptionally strong terms about the energy crisis threatening Europe and the world.

“Although concerns about global security exist, the economic consequences are still poorly understood and underestimated. While it is true that uncertainty prevails and that as scenarios and declarations change daily, anything can happen, at the moment all reassurances are in vain. The global economy is at great risk, and the European economy is particularly vulnerable,” Angeloni writes in his analysis.

Speaking in an interview with the Italian TV channel La7, Crosetto, on the other hand, describes the attacks on energy production facilities in the Middle East as a “dramatic mistake”, the effects of which can last for years and extend far beyond the countries directly involved in the conflict.

“It will take a lifetime to repair the damage that is occurring now,” the minister states.

He takes, for example, the destruction of the Qatari liquefied natural gas (LNG) production facility, which, according to Qatari estimates, will take 3-5 years to repair.

The Strait of Hormuz decides

Ignazio Angeloni reminds that the price of a barrel of crude oil has now remained around or above 100 dollars for a long time. In addition, the flow of crude oil and gas through the Strait of Hormuz has practically stopped.

“Everything points to the continuation of the blockade: Iran’s new leadership is lowering its front of resistance, weakening it, and the current escalation of hostilities favors this strategy. According to military experts, a few highly mobile and hard-to-track drone launchers deployed along Iran’s coast north of the strait are enough to control the flow and ensure the duration of the blockade. According to figures, a daily supply cut of 20 million barrels of crude oil from the normal 100 million is about three times greater than the supply restriction introduced four years ago after the Russian invasion”, the economist compares.

At the same time, he points out that none of the countermeasures implemented by oil importers and producers seem to be sufficient. Angeloni also does not consider the use of strategic reserves of different countries to be effective.

“China and India are increasing their dependence on Russia, encouraged by the easing of sanctions. For Europe, this option is excluded or at least more difficult. Current trends suggest that global energy prices will continue to rise, possibly significantly, unless currently unforeseen development costs lead to a rapid easing of the situation,” he estimated.

Angeloni warns that the situation will soon start to have an impact on food production as well, and then the situation in the Middle East will really hit consumer prices as well.

“The resulting tightening of monetary policy mediates and amplifies the effects of the recession on the real economy. The European economy is exposed to these risks on both sides – energy and food.”

Guido Crosetto also reminds us of the wider effects of disruptions in energy production. The Italian minister hopes that more and more countries would join the alliance, which intends to help the United States in keeping the Strait of Hormuz open. President of the Republic Alexander Stubb said last night that Finland is also ready to support making transit possible.

Bank of America estimates this week that if the Strait of Hormuz remains practically closed for ten weeks, the reference price of European natural gas may rise to 500 euros per megawatt hour. Before the beginning of the crisis in February, the reference price was 29 euros.

According to the European Commission, since the start of the conflict in the Middle East, the EU has spent more than six billion extra euros on fossil fuel imports. The commission this week described the sum as a “stark reminder” of how dependent Europe still is on oil and gas.