The crisis of raw materials threatens to lead the world economy to a new disaster. On Monday, the prices of oil, gas or wheat once again broke records and they are already at levels that, if prolonged over time, could cause another recession in Europe.
Without going any further, the brent barrel -which sets the benchmark for oil in the European market- reached peaks of 139 dollars (about 127 euros), a price that had not been seen in the last 14 years. On Monday, filling the tank in Spain cost on average 1.7 euros per liter with gasoline and 1.6 in the case of diesel.
For its part, the european gas marked a new historical record and closed the day above 215 euros the megawatt hour with a strong peak of 345. This energy source was on Monday more than twelve times more expensive than in 2021. In addition, other key raw materials such as wheat recorded its second consecutive historical record (above 9 euros per ton), a figure that doubles what was recorded last year.
The crazy costs of energy and raw materials could take the economy to world breakout prices. If this situation occurs, energy prices would be so high that companies would stop their production to avoid losses, a movement that would shake the entire economy causing a strong recession that would end up lowering prices.
The enormous uncertainty caused by the war in Ukraine makes very difficult to predict the scope and breadth of the crisis. Not in vain, one of the main weapons that the Russian president, Vladimir Putin, has in the conflict is the key to the supply of oil and gas, which is vital for several European countries.
“Current prices are probably recessionary if they remain sustained. Now, it is impossible to know for how long they will remain at these levels, since they depend directly on how the conflict evolves, something that economists cannot predict,” explains Ángel Talavera, director of European Economy at the Oxford Economics consultancy. “Any news regarding a possible resolution of the conflict would probably bring them down fast, but all the same, a worsening of the situation, such as a supply interruption, would trigger them even more”Add.
Antonio Turiel, senior scientist at the CSIC and expert in the oil market, sees it even more clearly. “We are already at breaking prices. We have to internalize it,” he told this newspaper. “The oil companies already know that these prices cannot be maintained for a long time,” he points out. “I see a year of recession in which prices are surely going to cause a crash. I don’t rule out more than one price spike,” he adds.
On the contrary, Diego Rodríguez, a doctor in Economics and a researcher at Fedea specializing in the electricity market, is more cautious. “Breakout prices are still a theoretical concept,” he explains. “In any case we are facing prices that generate problems and inflation that is going to go to double digitssomething we haven’t seen for forty years,” adds the specialist. For Rodríguez, returning inflation to desirable levels “is going to require several years.”
For example, the levels that gas has reached -which, as the European wholesale electricity market is proposed, determine the price of electricity- anticipate what could be a scenario of lack of this raw material. For Rodriguez, the prices recorded on Monday are already scarcity prices “not in the sense that a purchase has ceased to be satisfied”, but in that the markets anticipate that possibility. “The odds are not that low anymore given the seriousness of the situation in Ukraine,” he explains. However, the expert doubts that a recession could occur after the strong growth registered last year. However, he considers that “There will be a very clear drop in growth”because of the prices.
Energy sanctions, a taboo subject
Monday’s sharp rise in commodity prices has much to do with investor fears that the Western bloc will decide for extend sanctions on Putin to the field of energy. The subject is so far a taboo for Europe, where several countries rely heavily on Russia for daily supplies. Nevertheless, according to various information Yes, an embargo on Russian oil has been discussed.
However, German Chancellor Olaf Scholz ruled out this possibility on Monday. “Europe deliberately excluded energy supplies from sanctions on Russia”highlighted the chancellor, who also recalled that “currently there is no other way to ensure energy supplies for heating, for mobility and for electricity and industry”.
Calviño anticipates that the Spanish economy will suffer
In this context, the First Vice President and Minister of Economic Affairs and Digital Transformation, Nadia Calviño, warned on Monday that the war in Ukraine will cause a slowdown in the Spanish economyalthough for the moment he also rules out a recession.
“Hard times are coming”, admitted Calviño, who stressed that “we must get used to the idea of what is coming”, referring above all to inflation, according to the Efe news agency. For the vice president, one of the solutions to the energy crisis would go through delink wholesale electricity prices from the cost of gaswhich would imply intervening in the European market, something that just two weeks ago seemed unthinkable.
Precisely, the College of Commissioners of the European Commission will meet this Wednesday with the issue of energy prices on the table. Faced with the possibility that a new pricing system could come out of it, sources in the electricity sector describe the situation as one of “very tense calm” while waiting for what Brussels decides. “All eyes are on there,” they add.
