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European Energy Prices May Rise Sharply If Geopolitical Situation Worsens, Central Bank Says

© Sputnik / Ruslan Krivobok / Go to the mediabankBooster pump station
Booster pump station - Sputnik International, 1920, 03.02.2022
MOSCOW (Sputnik) - In the event that current "geopolitical clouds" over Europe become a reality, energy prices may increase substantially, having an adverse impact on the entire European economy, President of the European Central Bank (ECB) Christine Lagarde said.
Answering a question on potential escalation in Ukraine, Lagarde said the economic cost of such escalation would be significant.
"The geopolitical clouds that we have over Europe, if they were to materialize, would certainly have an impact on energy prices and through energy prices and increased cost, throughout the whole structure of prices," Lagarde said at a briefing, following the ECB Governing Council meeting in Frankfurt.
Lagarde specified that the geopolitical controversy, if exacerbated, would affect price growth as a result of reduced income, shrinking consumption and investments.
"The pure economic impact would be certainly significant than what we are seeing at the moment in terms of prices," Lagarde added.
Last year, the European Union faced a major hike in energy prices, with the annual inflation rate in the energy sector reaching 28.6% and the natural gas costs rising by 68.7%.
Protracted tensions around Ukraine have intensified in recent weeks, with NATO raising concerns an over Russian military buildup at the Ukrainian border and urging allies to enhance their military support for Kiev. The European Council announced last week that Moscow would face "massive consequences and severe costs," if it invades Ukraine, with the European and US officials saying that an unprecedented batch of sanctions is being prepared to hit Russian economy.
Russian President Vladimir Putin signs a section of the Power of Siberia pipeline during its construction, September 2014. - Sputnik International, 1920, 04.01.2022
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At the same time, Russia remains the largest supplier of natural gas to the EU, accounting for 46.8% of total gas imports, with nearly 12.8% of Russian gas entering the EU via Ukraine transit route. Among other sources of gas imports to the EU are Norway with 24.5%, Algeria with 11%, and Qatar with 4.3%.
On Tuesday, following talks with EU Commissioner for Energy Kadri Simson on increasing natural gas supplies "in case of a disruption of pipeline gas," Qatari Energy Minister Saad Sherida Al-Kaabi said that the volume of gas needed by the EU cannot be replaced by any country unilaterally, with the European energy security requiring "a collective effort from many parties."
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