Which European country is most affected by the conflict? - Greece, Cyprus, Poland, Bulgaria, most affected by an energy crisis
The economic, fiscal, political and credit impacts of the war in the Middle East will depend on the duration and severity of the conflict, the extent to which energy supplies are affected and the resilience of each economy, Scope Ratings estimates.
While Europe as a whole is expected to be able to withstand a short-term increase in energy costs, some countries are more vulnerable than others, analysts say. Greece, along with Cyprus, Poland and Bulgaria, are the countries most vulnerable to a prolonged energy crisis because of their heavy dependence on oil and gas for their economic output.
If the military conflict proves brief and largely contained, then the macroeconomic and financial impacts could be manageable for all countries it covers, Scope estimates. In this scenario, central banks and fiscal authorities will look beyond temporary inflationary pressures.
Any prolonged disruption of export facilities, energy infrastructure, or the Strait of Hormuz itself, combined with increased instability in the region, increases the risk of a negative supply shock. This would lead to higher oil and gas prices and, consequently, economic, fiscal, and even political consequences at the global level.
Europe’s continued dependence on oil and LNG imports makes the continent more vulnerable to energy shocks, says Scope. EU natural gas reserves are only 30% full, but demand is expected to fall sharply as winter draws to a close. Europe’s energy sources are more diversified than when the war in Ukraine began, and inflation is close to the ECB’s target.
In such an environment, Scope considers it unlikely that European natural gas prices (TTF) will rise to the highest levels of 2022.
Among the European countries whose energy mix is particularly dependent on oil and gas, and therefore most vulnerable to rising energy prices, Scope lists Malta, Cyprus, Ireland, the Netherlands and Greece. All of these depend on oil and gas for around 80% of their total energy.
Moreover, if we consider the dependence of economic activity on oil and natural gas, the most vulnerable countries are Greece, Cyprus, Poland and Bulgaria. Of the large economies, France has the lowest exposure to this shock, due to its many nuclear power plants.
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