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The energy crisis sparked by Russia’s invasion of Ukraine intensified today as gas prices soared and the United States warned of another spike in oil prices unless major importers agree to cap the amount they pay for Russian crude.
This morning’s rise in gas prices in Europe by a further 12% comes on top of an increase of more than a third so far this week. They are now around 10 times the price of last year before Russia started to restrict supplies.
Gascade, the German gas network operator, said this morning that flows on Nord Stream 1, which connects Russia to Germany, had fallen by around half to 20% of capacity. Russia says the reduction was due to turbine problems, made worse by Western sanctions.
The EU, which before the invasion of Ukraine relied on Russia for 40% of its supplies, is struggling to get member states to agree to a voluntary 15% reduction in consumption to help fill the sites of storage before winter. An agreement was finally reached but with a long list of opt-outs if the objective became binding. Rations and shortages this winter are a real prospect, especially if Russia tightens its grip.
Italy’s outgoing Prime Minister Mario Draghi underlined the scale of the challenge, saying his country’s “unacceptable energy dependence” on Russia was the “consequence of decades of short-sighted and dangerous choices”. .
Energy companies, meanwhile, are benefiting from the turmoil, with Norway’s Equinor and Spain’s Iberdrola posting windfall profits today. European oil and gas majors BP, Shell and TotalEnergies, all reporting earnings over the next week, are generating more cash than ever, raising the prospect of large-scale acquisitions to accelerate their transition to a clean energy.
Across the Atlantic, the main concern is the high price of oil, which has weighed on US consumer confidence. Even though prices have retreated in recent weeks, the market remains extremely fragile, reports our Energy Source newsletter (for Premium subscribers).
The Biden administration is trying to get major oil importers such as China and India to agree to a price cap on Russian crude to avoid an even more damaging rise in fuel costs. India’s reliance on imported oil could further derail the country’s pandemic recovery and, given its growing importance as a consumer market and manufacturing hub, can only add to fears. of a global slowdown.
The United States is also joining the EU’s ban on insurance and services for ships carrying Russian oil, but fears that the expected decline in exports could leave markets exposed and drive up prices.
However, one aspect of European energy policy that the United States is unlikely to follow is to urge its citizens to be more frugal. To try to do so would be political suicide, reports US correspondent Myles McCormick.
As one industry consultant put it, “In Europe they said turn down the thermostats and you’ll find your way to freedom. President Jimmy Carter donned a cardigan and said the same thing – and he lost re-election.
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Need to know: the economy
The US Federal Reserve announces its interest rate decision at 2pm ET/7pm UK today amid soaring consumer prices and growing recession fears. Check FT.com for more details and the latest reaction.
The IMF issued a gloomy update to its global economic outlook, highlighting the risks “mostly on the downside”. The fund cut its growth forecast for 2022 to 3.2%, with 2.9% for next year. Its inflation projections have risen to 8.3% this year and 5.7% in 2023.
Latest for UK and Europe
Long Covid is costing British workers £1.5billion in lost income and appears to be having a lasting effect on the economy, new research shows. About 2 million people showed symptoms in May and the number of people suffering from the disease has doubled in the past year.
A UK parliamentary committee has said the government must provide immediate relief to households struggling with soaring energy costs or risk further damage to the wider economy. Prime Minister candidate Rishi Sunak has said he will reduce VAT on invoices. Our Money Clinic podcast offers practical advice for dealing with rising prices and higher interest rates.
Brussels said ItalyThe next government could not renegotiate the bases of the EU-funded 200 billion euro Covid-19 recovery plan and must meet its economic reform commitments. Polls suggest that the September 25 elections could result in victory for the far-right Brothers of Italy.
Latest World
El Salvador said it would buy back $1.6 billion of its sovereign bonds to stave off default fears. The bonds have traded at significant discounts since its adoption of bitcoin as legal tender, alongside the US dollar, in September 2021.
What defines the current global food crisis The causes aside, our latest Big Read explains, from conflict in Ukraine to drought to pandemic-era supply chain issues. The Food and Agriculture Organization of the United Nations predicts that war alone will increase the number of undernourished people to 13 million this year and another 17 million in 2023.
The policy of strict inflation targets for central banks caused economic harm, according to financial historian Edward Chancellor. Whenever an institution is driven by a specific goal, critical judgment tends to be suspended, he argues. Chief economics commentator Martin Wolf compares the Chancellor’s arguments to those of former Fed Chairman Ben Bernanke in our latest book essay.
Need to know: company
One of the most striking aspects of the second quarter earnings season was price increase large consumer goods companies like Unilever, Kraft Heinz, McDonald’s and Danone reacting to rising prices.
Retailers also signal a shift in consumer behavior as times get tough: Walmart, the world’s largest, issued its second profit warning in 10 weeks this week.
E-commerce is not immune: Shopify shares plunged after announcing it would lay off 10% of its employees, explaining that it had made a mistake in believing that the pandemic outbreak in online retail would continue . Amazon blamed inflation by raising the cost of its Prime membership service in Europe, while Chinese rival Alibaba scaled back plans for global expansion.
Energy costs are also a recurring feature of this week’s earnings stories. Frozen food store Iceland today warned against the blow of keeping its freezers running. Grocers like Aldi are also facing growing labor market pressures.
The technology sector was a little more optimistic. Microsoft said it was confident of hitting its full-year targets despite a weaker PC market and a stronger US dollar. Alphabet, Google’s parent company, reported “solid growth” in its core markets even as economic uncertainty hit ad spending.
Good news also luxury sector, where Louis Vuitton benefited from strong sales in the United States and a tourist boom in Europe which helped to offset the effect of the closures in China. German automaker Mercedes raised its revenue forecast after benefiting from growing demand for its premium models.
Financial services companies have reported mixed fortunes. Lloyds beat profit forecasts thanks to rate hikes and mortgage activity; Credit Suisse went into loss; Deutsche Bank dropped its full-year cost target; and UBSthe world’s largest wealth manager, reported earnings below expectations as clients “stayed away” amid volatile markets.
Post-Brexit regulation will cost UK chemical industry £2 billion in red tape, double the original estimate. Both candidates for the post of British Prime Minister have promised to review all retained European laws and scrap onerous rules, but replacing them with British regulations is likely to prove costly and disruptive. Experts have also warned of opening a ‘chasm’ between UK and EU standards on hazardous chemicals.
The qatarairways The chief told the FT the aviation disruption would last for years, as he described his company’s blow to Europe’s staff shortages, delivery delays and lack of spare parts. Heathrow airport warned it could extend its cap on flights.
The world of work
Bosses can be eager to get people back to the office, but many workers who have experienced a new sense of empowerment while working from home aren’t so enthusiastic. Isabel Berwick and her guests discuss how the impasse can be resolved in the new Working It podcast.
Covid cases and vaccinations
Total number of global cases: 566.3mn
Total doses administered: 12.3 billion
Get the latest global picture with our vaccine tracker
Some good news…
It’s a golden moment for sports fans with the Lionesses of England roaring through to Sunday’s Euro 2022 final, heroic feats at the World Athletics Championships and Commonwealth Games from of tomorrow. Today also marks the tenth anniversary of one of the greatest shows to ever be staged in Britain: the London 2012 Opening Ceremony. Brew yourself a nice cup of tea and relive the full experience here.
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