Germany-Ifo: Oil and gas price shock if Russia invades Ukraine

The president of the German think tank, Ifo, Clemens Fuest, in his special research, warns that there will be a shock to the price of oil and gas if Russia invades Ukraine.

“Even if gas supplies were not limited, there would be a price shock, at least temporarily. This would affect both private households and industry in Germany. So far we expect inflation at 4% by 2022. If war breaks out, it could to be even higher “.

At the same time, Fuest referred to interdependence. Western Europe needs Russian oil and gas, but Russia also needs the money paid for it.

The disruption is unlikely because Russia wants to continue selling gas to Europe in the future. Otherwise, the EU would get gas elsewhere in the future, for example liquefied petroleum gas from ships. Expanding infrastructure in Germany would therefore make sense. In the short term, however, supply congestion could occur.

Apart from the energy market, Russia’s national economy is not so important in itself: Russia’s gross domestic product corresponds to the combined economic production of Belgium and the Netherlands. In addition, economic relations are already limited due to existing sanctions.

“Sanctions imposed over the occupation of Crimea reduce German economic production by about 5 billion euros a year. This is 0.16% of Germany’s gross domestic product. The damage to Russia is greater: it is 1.2%. “If further sanctions were imposed, they could put additional pressure on the German economy, but even more so on the Russian economy,” said Lisandra Flach, head of the Foreign Trade Center at the Ifo Institute.

Fuest added that a drop in consumer demand in Germany as a result of the crisis in Ukraine is unlikely. The Omicron mutation is currently the braking factor. “But households have accumulated significant savings that they would be happy to spend, despite higher energy prices.”

Source: Capital

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