But this increase is only temporary, according to him. “Only 5% of European demand passed through this pipeline. It’s not huge. The tension created can temporarily increase the price of gas, especially in winter and in Eastern Europe such as Slovakia or Moldova. But it shouldn’t have a major impact.”he nuances. “You don’t have to worry.“
Panic
This increase could, however, also have slight consequences on the price of electricity and oil in the days to come, warns the economist. “There are substitution effects. We will consume less gas to demand more oil. Which, of course, will increase the price.” Similar thinking for electricity puts forward Bertrand Candelon: “The electricity market is based on the marginal utility of the last gas plant. So it will also increase the price of electricity a little.“
If prices increase while the gas pipeline only imported 5% of gas demands in Europe, it is mainly “related to panic“, explains Bertrand Candelon, which complicates forecasts. “Supply is minor. There is LNG to fill the gap, but the fear on the markets is difficult to model.” It thus recalls the price peak in 2022. “During the summer, it reached a price that was out of line with supply and demand.“
“Historical”
On the Ukrainian side, however, the end of this flow is seen as a victory. “We have stopped the transit of Russian gas, it is a historic event. Russia is losing markets, it will suffer financial losses“, welcomed the Ukrainian Minister of Energy, German Galushchenko. President Volodymyr Zelensky made a similar speech: “When (Vladimir) Putin took power in Russia more than 25 years ago, the annual volume of gas sent via Ukraine to Europe amounted to more than 130 billion cubic meters. Today, Russian gas transit is at zero, which is one of Moscow’s biggest defeats“, he wrote on social networks.
However, claiming victory would be a bit exaggerated according to Bertrand Candelon. “For Russia, most exports are re-exports. That is to say, they take a country, in the Gulf or in India, which re-exports Russian gas.“No colossal loss for the Russian economy, therefore, according to him.”I think that the end of this agreement is simply to push Europe to be more engaged with what is happening in Ukraine.“
There remains, according to the economist, a great unknown for the future evolution of the markets. “There is a big shock coming on January 20. (Ed. Donald Trump’s arrival in power in the United States) Everyone is waiting to see what will happen with the United States. He announced that he would resolve the conflict in Ukraine, but it is very difficult to predict what will happen next.“
