Tradeline Financials - European Energy Issues - Week 25, 2014
European Markets are expected to open slightly lower today due to concerns over Iraq and continued issues with the Ukraine and Russia.
Causing concern for several European countries yesterday, GazProm finally cut off natural gas supplies to the Ukraine. The dispute has been at the forefront of negotiations since Moscow annexed Crimea and the rest of the eastern provinces of the Ukraine continued to see violence from pro-Russian separatists and local government forces. The issue stems from a reported $4.5bn being owed to GazProm by Naftogaz, the Ukrainian state energy company. Naftogaz says that they are owed $68bn due to overpayments since 2010 due to the overpriced increase by GazProm of 80% which saw the debt dramatically increase. An initial offer by GazProm was rejected by Kiev for them to settle $1.95bn and subsequently the country now is relying on their reserves which should last to December.
With concerns over natural gas supplies and renewed violence in Iraq pushing the cost of oil to nine month highs, Europe and its energy supplies will be of major concern over the coming weeks. The Eurozone economy has been showing signs of expansion of late and good news has been a long time waiting. Now that Moscow has started to show its cards, several eastern European countries are right to be worried about the possible repercussions should the situation not see a resolution in the near future. Bulgaria has already been pulled into the mix by the US and have halted production of a natural gas line which would have diverted substantial supplies away from the Ukraine and its pipe. Europe relies on Russian NG and knows that with the Iraqi situation that they cannot risk further ostracizing Moscow into reducing supplies to the entire region.
If oil continues to rise and the predicted $110 per barrel is seen in the next few days the good work achieved and reported over the last few months will be a distant memory as the entire EU reels in increased energy bills and the following increase in living costs as a result of that. It could be deemed that Moscow is looking to force a hand before the colder months start to take effect. Europe is just starting into Summer and with reduced requirements for heating wont feel the pinch as much now as later on this year.
What we need is for the situation in the Ukraine to be resolved peacefully and quickly to avert a very cold and expensive winter for the majority of the EU.
European Indices as of 17th June 2014:
FTSE100 - 6754.64
DAX - 9,883.98
CAC40 - 4,510.05
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