European Commission Assesses Risks of Energy Crisis for EU Economy

During the 'Economic Dialogue' event held in Brussels on Wednesday, European Commissioner for Economy Valdis Dombrovskis addressed the significant risks that the ongoing energy crisis may create for the economy of the European Union. He emphasized that the war in the Middle East has resulted in one of the largest disruptions in supply chains in the history of the global energy market, which has serious implications for the global economy.

Dombrovskis pointed out that attacks on the Strait of Hormuz and energy infrastructure have caused a substantial increase in energy prices. 'The shockwaves from these disruptions reverberate throughout the global economy,' he added, indicating the far-reaching consequences of the current situation.

He also stressed that the impact of the energy crisis will depend on the duration, scale, and intensity of the conflict. Although the recently announced two-week ceasefire provides some relief, as the price of Brent crude oil is currently below $100 per barrel, the outlook remains 'clouded by deep uncertainty.'

'The European economy remains under threat of stagflation shock,' Dombrovskis noted, explaining that this means a slowdown in economic growth amid high inflation. According to him, an analysis conducted by the European Commission showed that the EU's gross domestic product (GDP) this year could be approximately 0.2 to 0.4 percentage points lower than previously projected in the economic forecast under a scenario of short-term disruptions. Meanwhile, inflation in this case could be 1 percentage point higher.

Dombrovskis also warned that if supply disruptions prove to be more significant and prolonged, the negative consequences for growth could be even greater. In such a scenario, growth could be 0.4 to 0.6 percentage points lower, and inflation could be 1.1 to 1.5 percentage points higher in both 2026 and 2027.

It is important to note that Dombrovskis emphasized that this data represents a scenario analysis rather than a definitive economic forecast, which will only be published in mid-May. He also reminded that last month, EU leaders urged the European Commission to present a set of targeted temporary measures to address the rising energy prices.

In response to these challenges, the European Commission plans to propose establishing lower taxation rates on electricity to ensure lower taxes than on fossil fuels. Measures are also anticipated to enhance the productivity of network infrastructure, modernize the emissions trading system, and increase market stability reserves to reduce price volatility.

'In this context, it is crucial that, in addition to managing immediate energy shocks, a key priority is the structural transition to an electrified economy,' Dombrovskis stated, underlining the need to lower the relative price of electricity compared to fossil fuels and strengthen networks. He believes that this is the only viable solution for the long-term protection of the European economy from the volatility of fossil fuel prices and supply conditions.

It is worth recalling that earlier, Ukrainian President Volodymyr Zelensky stated that the decrease in global oil prices following the announcement of a ceasefire in the Middle East is a positive signal for the markets and intensifies the sanctions pressure on Russia.

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