EUROPEAN STOCKS TUMBLED today and the euro hit a new 20-year dollar low on energy crisis fears, after Russia said it would not restart gas flows to Germany and effectively most of the continent.

Natural gas prices spiked almost a third, while oil added to strong gains as OPEC and its Russia-led allies decided at a meeting today to lower crude output in a bid to lift prices.

The gas crisis also hit the pound, which hit a post-pandemic low of $1.1444. It pulled back up to around $1.15 after Liz Truss was confirmed as the successor to Britain’s Prime Minister Boris Johnson.

‘Weaponisation of energy’ 

“Russia’s ongoing weaponisation of energy supplies continues to increase downside risks for European economies and the euro,” said Lee Hardman, currency analyst at financial services group MUFG.

The euro sank today to $0.9878, its lowest since December 2002, despite expectations the European Central Bank will hike interest rates again Thursday to combat soaring inflation.

The shared eurozone unit has collapsed by about 13% against the dollar since the start of the year, hit also by the US Federal Reserve’s more aggressive monetary tightening.

State gas giant Gazprom announced late on Friday the key Nord Stream pipeline would remain shut indefinitely, blaming leaks.

Gazprom’s announcement came the same day as the G7 nations said they would work to quickly implement a price cap on Russian oil exports, a move that would starve the Kremlin of critical revenue for its war on Ukraine.

Resumption of deliveries via the pipeline, which runs from near Saint Petersburg to Germany under the Baltic Sea, had been due to resume on Saturday after what Gazprom had described as three days of maintenance work.

‘Grim shadow before winter’

The news intensified an energy crisis caused by Europe’s sanctions on Moscow for its invasion of Ukraine in February.

Investors are fearful of an energy supply crunch during the peak-demandin winter. That could potentially lead to a painful recession.

“Russia’s decision to turn off Europe’s gas hangs over the continent like a grim shadow ahead of winter,” said AJ Bell investment director Russ Mould.

At the same time, governments worldwide are grappling with the impact of rocketing domestic energy costs.

Germany yesterday unveiled a new 65-billion-euro ($65-billion) package to help households cope with soaring prices, and eyed windfall profits from energy companies to help fund the move.

That took Berlin’s total relief to almost 100 billion euros since the start of the Ukraine war.

Elsewhere, Asian bourses experienced mixed trade as last week’s upbeat US jobs report partly offset fears over Europe’s outlook — and China’s new Covid lockdowns.

US markets were closed Monday for a public holiday.

– © AFP 2022