On Thursday, 24 February, an armed conflict broke out between Russia and Ukraine. Europe’s energy supply relies heavily on Russian imports, so the event has led to rising energy prices. The news of the war was priced by the market: for the most affected natural gas, prices rose from 88 euros/MWh on Wednesday to 93 euros/MWh on the Dutch gas exchange on Friday. The reason for the modest increase was that measures affecting gas supplies were not included in the European Union’s first sanctions package.

Fear of restricting energy supply is justified. The European Union consumed 505 billion cubic metres of natural gas in 2020, of which 175 billion cubic metres were imported from Russia. The community has been hit by an energy crisis over the past six months, so gas storage levels are at record lows: consumption would only be possible to be covered for some weeks. The needs of the current period and partly the summer demand can be met from own and non-Russian external sources and the natural gas available in the storage facilities, but the refilling of the storage facilities and the increased consumption of the next heating period cannot be provided. Due to the limited supply on the world market and the infrastructural capabilities of the European Union, only 2-3 billion cubic metres of additional sources could be obtained in the short term, which would not replace the Russian imports of 175 billion cubic metres. Stopping supplies would almost immediately lead to drastic increase in prices and, in the short term, economic recession, plant closures, job losses, collapse of supply chains, and restrictions on residential heating services.

However, as Russia generates significant revenue from energy exports, there is growing social pressure on Western politicians to extend sanctions to oil and gas supplies, despite the disastrous social consequences. Many European and American representatives have tried to resolve the contradiction by demonstrating their intention to extend sanctions. And while market actors are aware that the intervention is irrational, they are increasingly afraid of its introduction as a result of a series of statements. The Hungarian left also wants to extend sanctions to the energy sector, creating a political uncertainty that is jeopardising the forint.

Growing fears have now led to a stock market price explosion. On Monday, there was a period when the price of natural gas reached 345 euros/MWh on the Dutch gas exchange (meaning a 3.5-fold increase in prices in one week). In addition, market volatility has increased tremendously, leaving room for speculation. As gas supplies continue to be uninterrupted, the consequence of the drastic rise in prices is that Russia’s revenue and the European Union’s costs are constantly rising.

Therefore, floating the sanctions is counterproductive: it will cause serious damage to the European Union and Hungary. The unfavourable trend points out that in a war situation it is particularly important for representatives to refrain from making politically motivated, irrational announcements and to make calm, clear statements. In order to stop the panic in the energy market, it is essential that Western and Hungarian left-wing representatives stop floating sanctions on energy supplies and declare that they do not support the measure.