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Hewison Insights

The European Winter is Coming.

Alexi Guagas
Senior Associate Adviser
27 Jul 2022

You wouldn’t expect Europeans to be thinking about cold weather right now, as they swelter through one of their hottest summers in recent memory. London is melting, while Spain and Portugal are literally on fire.

One thing to keep an eye on as Europe moves into winter is the ‘global energy crisis’. Triggered mainly by rising global oil and natural gas demands, this crisis that has been exacerbated by the Russia–Ukraine war and associated shortages and sanctions. The flow on effect of the war has had significant implications for energy security across Europe and even here in Australia as petrol prices skyrocket.

The situation has worsened in recent months by the war as exports are blocked and countries across the West scramble to reduce their reliance on Russian gas. There is no getting away from it; energy prices are soaring.

Can European leaders convince their people to endure high energy prices while the cost of supporting the defence of democracy in Ukraine also continues? It remains to be seen.

It should also be noted, the price of natural gas in Europe is now four times higher than this time last year and inflation in the eurozone countries is at a record-high of 8.6%.

Furthermore, a not so favourable outlook was presented by the International Energy Agency (IEA) to European leaders and energy executives at the annual energy efficiency conference in Copenhagen in June. IEA concluded; Europe may be unprepared for the coming winter. Europe’s traditional ability to easily hoard gas and coal for winter has been undermined by the recent record-breaking heat waves.

While there have been some efforts by the European Union to improve the situation by doubling natural gas imports from Azerbaijan, generating energy stability with rising inflation will prove to be a difficult feat. Governments across Europe are faced with the difficult task of continuing to find the required energy for winter and relieving the burden posed by increases in energy prices to the consumer.

Make no mistake, winter is coming, and it promises to be divisive as the energy crisis continues to disrupt global economic markets.

As the latest edition of The Economist notes, “several calamities in the past decade have come close to ripping Europe apart… The winter energy shock of 2022 could yet join them.”

When looking at times of uncertainty such as these, it is crucial to stick to the plan. Every client portfolio at Hewison Private Wealth has a very specific investment strategy that we follow through all market cycles. Volatility creates opportunity for the patient investor.

Yes, markets have been impacted of late, but as history has always shown, what goes down, must come back up.