Electricity rates could flare-up due to geopolitical tensions in Europe, warns European Central Bank chief

Frankfurt/Moscow: – The chief of the European Central bank warned, ‘There are shadows of Russia-Ukraine conflict and if this becomes a reality the electricity rates in Europe could flare up.’ Christine Lagarde, the chief of the European Central Bank, warned that the increase in electricity rates would negatively affect the European economy. Only a few days ago, it had been reported that the reserve stocks of natural gas have declined to a level of 40%. Since this is the first instance of the natural gas stocks depleting in Europe’s intensifying energy crisis, analysts have warned.

The electricity rates have been on the rise for the last year. The electricity rates in Germany, the leading European country, had reached Euro 344 per megawatt-hour in December 2021. This is a record for the European countries. The increase has continued even after that, and in January, the electricity rates increased by 28%. The European countries have adopted a policy to subsidise the electricity bills and reduce taxes to counter the rising prices.

The warning issued by the European Central Bank, while the shadows of the Russia-Ukraine conflict persist, indicates that the electricity prices are set to rise further. ‘If shadows of the geopolitical crisis looming over Europe became a reality, it will significantly impact the fuel prices. Rates of other things along with electricity could flare-up. Lagarde warned that if the crisis lasted long, it could affect the demand, investment, and revenues in Europe.

Natural fuel gas has a significant share in electricity generation in Europe. More than 30% of this gas comes from Russia. Currently, Russia supplies 230 million cubic metres of natural gas to the European countries. A third of this gas passes through the pipelines passing through Ukraine. Given the reigning tension between Russia and Ukraine, there is a fear of this supply getting disrupted or stopped. This will disturb electricity generation in Europe and trigger a flare-up in the electricity rates. Statement of the European Central Bank Chief indicates that this Energy Crisis may directly impact the European economy.