The surge in energy prices, particularly natural gas and crude oil, is raising concerns that the European Union could face a stagflationary crisis, as the region’s economy grapples with rising inflation and slowing growth.
Energy prices have spiked in January, driven by increased demand and new U.S. sanctions on Russia, which have pushed natural gas and crude oil futures to their highest levels since late 2022.
Natural gas prices briefly hit $4.37 per million British thermal units (MMBtu) at NYMEX, the highest since December 2022, before retreating on Monday. Similarly, crude oil futures, including WTI and Brent, surged to levels not seen since August 2024, with WTI up 17% and Brent climbing 14% since early December. The price surge in natural gas is mainly due to increased demand from colder weather in the northern hemisphere, while the rise in crude prices is linked to expanded U.S. sanctions on Russia’s oil exports.
Natural gas futures in the Netherlands’ Title Transfer Facility (TTF) saw a 27% increase compared to the same period last year, reaching an average of $14.55 per MMBtu by January 8. U.S. oil inventory data also showed a consistent decline, and recent U.S. sanctions targeted key Russian oil producers and shipping vessels, further intensifying market pressure.
These elevated energy prices pose significant risks to the Eurozone’s economic stability, particularly affecting manufacturing sectors already struggling amid political uncertainties. The region faces challenges similar to those experienced during Russia’s invasion of Ukraine in 2022, which disrupted energy supplies and fueled inflationary pressures.
According to Kyle Rodda, a senior market analyst at Compital.com Australia, the risk of stagflation in Europe is growing. “There is the risk that stronger energy prices lead to a stagflationary mix in Europe, which obviously can’t sort out its energy policy and is dealing with typically moribund growth,” he said. Stagflation is a scenario characterized by high inflation, stagnant growth, and rising unemployment, and it now looms larger for the Eurozone.
S&P Global’s November projections suggested that the Eurozone’s GDP growth would be modest at 0.8% in 2024, with a slight increase to 1.2% in 2025. However, these projections were based on expectations of lower energy prices and an easing of inflation. A resurgence in energy prices threatens to undermine these forecasts and complicate the European Central Bank’s efforts to balance inflation control with economic growth.
