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Ukraine crisis could have ‘very serious’ impact on energy prices

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07/03/2014
The president of the European Central Bank (ECB) has said the currency crisis in Ukraine could have serious and long-lasting implications for the European energy market.

Mario Draghi said although the impact of the geopolitical tensions on the energy market remains minimal, it may escalate to a “very serious” threat.

The Telegraph quotes him saying: “If we look at [the energy market in] the next six months, the [impact of the crisis] is going to be very mild. If we look in a year-and-a-half, it could be very serious.”

Russia supplies a third of Europe’s gas, 55% of which flows through Ukraine. If Russia threatens to turn off this supply, gas prices across Europe could rocket.

Draghi also said the strength of the euro will keep inflation below the bank’s 2% target until at least 2017.

He calculated the currency’s 8% appreciation against the US dollar since the 2012 low has reduced the inflation rate by around 0.4pp (currently at 0.8%).

Yesterday, the central bank chose to leave its base rate unchanged at 0.25% and lowered its inflation forecast for the year by 1pp to 1%. The bank also slightly increased its eurozone growth forecast for the year from 1.1% to 1.2%.

European markets trended higher on Thursday, as the situation in the Ukraine seemed to ease, but lost steam after the ECB’s inaction, as many investors hoped it would vote to inject more liquidity into the financial system.

The bluechip Euro Stoxx 50 closed up by 0.3%, while the FTSE Eurofirst 300 ended the day flat, despite moving higher earlier in the day.

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