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ARCHIVED - Sanchez warns of harsh economic impact of the war on Spain
The war in Ukraine threatens a “brutal energy crisis” in Spain and the rest of Europe
The invasion of Ukraine by Russia has already had a devastating impact on global economic recovery, with European stocks plummeting just hours after the attacks ordered by Vladimir Putin began and oil and gas prices rising to unprecedented levels overnight. The threat of war has been looming for weeks and Spain’s President Sánchez assured the nation on Thursday February 24 that the government has formalised a plan to contain the impact on citizens’ pockets, without actually detailing what this entails.
Instead, the president simply said that Spain has “been preparing its reaction to this risk for some time and we have taken as many measures as are necessary to mitigate the economic and energy impact on society, households, industry and the economic recovery.”
And it appears a plan is sorely needed, as a barrel of Brent oil swept past the $100 mark yesterday to reach its highest level since 2014 while the reference metre for gas in Europe (the Dutch TTF) reached 144 euros per megawatt hour – a rise of more than 60% overnight.
The shock caused by the Russian attack was also quickly transferred to the Spanish markets, where gas shot up to 113 euros/MWh, its highest price so far this year. Similarly, electricity shot up to 240 euros/MWh, its second-highest value.
The sharp rise in gas and oil prices has led many experts to hint at the possibility of a new recession. Spain, and Europe in general, was already experiencing unprecedented inflation, but as higher energy prices continue to push up the costs of virtually every consumer product, Manuel Hidalgo, professor of Economics at Pablo Olavide University, believes it is almost inevitable that the European economies will end up entering a recession.
“If the conflict continues or deepens, we are going to have a brutal energy crisis,” he said.
Russia holds the key to the gas supply
Europe currently imports 45% of its gas and 30% of oil and depends heavily on Russian supplies. With the EU threatening to slap Russia with “the biggest package of sanctions ever implemented”, it seems all too likely that Putin will use gas as a strategic weapon, cutting off supplies to Europe and leading to an explosion in electricity prices.
Spain, thankfully, is in a better position than most and it’s unlikely to face gas supply problems due to its low dependence on Russian gas, although it will suffer the effect of greater competition in the market.
When it comes to oil, the impact of the war becomes less clear, but Antonio Turiel, tenured scientist at the CSIC, has pointed out that if the prices reached Thursday are maintained for more than a few weeks, it will almost certainly result in a world recession.
“If these scenarios materialise, they inevitably lead to a recession... a brutal one. We’ve never seen anything like this,” he concluded.
Image: Pedro Sánchez Twitter
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