
The EU plans to intervene in markets directly to curb rising energy costs, threatening to push the Euro area's economy into a deep recession.
2022-12-15 • Updated
The Russian president's announcement that countries "unfriendly" to Moscow must pay for gas deliveries with rubles shows that he's willing to use energy as a weapon in the Ukraine war. It puts the West in a tight spot.
With his demand for payments in the Russian currency, Vladimir Putin has dealt a surprise blow to Western countries still using large volumes of Russian gas for their energy needs.
The Russian president stated the measure would apply to 48 countries deemed "hostile" and include the United States, the UK, and all members of the European Union.
Combined with an extremely growing inflation in Europe, this fact might press the euro to the lowest numbers since 2015.
Europe is the number one continent depending on the Russian gas supply. Data from the European Union Agency for the Cooperation of Energy Regulators shows which countries' energy supply would be most in jeopardy in the case of a Russian gas freeze.
Among the continent's major economies Germany imports around half of its gas from Russia, while France only obtains a quarter of its overall supply. Italy would also be one of the most impacted major economies at a 46% reliance.
Some smaller countries in Europe rely exclusively on Russian gas, namely North Macedonia, Bosnia and Herzegovina, and Moldova. Dependence also exceeded 90% of the gas supply in Finland and Latvia.
As we can see, Russian holds the most significant part of the European gas market. That's why the European Union needs to find the right decision in this situation.
There are three possible outcomes:
US president Joe Biden called the European Union to refuse the Russian gas and replace it with US LNG (liquid natural gas). However, there are some issues with it.
Based on all of the above, unfortunately, Europe has little chance to avoid an energy crisis so far. Rising inflation adds oil to flames. It’s necessary to tighten the monetary policy and reduce the balance sheet in the future. Nowadays, people are going on strike with the topic of rising prices for raw materials, fuel, and fertilizers. However, Gazprom is 100% fulfilling all its obligations under the contracts. What will happen if Gazprom turns off the pipeline for at least a month? A shutdown of factories, unemployment, the introduction of food cards may happen. Alternatively, the European Central Bank will have to print money and increase inflation to 20%-40%.
EURUSD, monthly chart
Why do we love technical analysis? Because at moments of total uncertainty, it may tell us the only right way.
EURUSD is moving in the symmetrical triangle. At the moment, the price is consolidating above the lower border. The most important support level right now is 1.0800. If buyers manage to hold the pair above it, the price might reverse and increase to 1.1150 and even 1.1450.
On the other hand, a breakout of this support will signal a long bear market for EURUSD, and the pair will decline to 1.0500.
The EU plans to intervene in markets directly to curb rising energy costs, threatening to push the Euro area's economy into a deep recession.
Yes, oil prices are burning right now, and inflation is getting hotter along with it worldwide. However, the oil's bullish momentum is under threat.
Geopolitical tensions are casting shadows on energy and oil markets with increased concerns about the potential invasion of Ukraine by Russia.
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