The energy crisis took a sharp turn over the weekend, after Russian energy giant Gazprom shut down the Nord Stream 1 pipeline after three days of maintenance works.
The company cited oil leaks in the pipeline as its reason for closing the supply line, however European leaders have accused Moscow of using Nord Stream 1 as a weapon in its war against Ukraine, a claim which the administration has denied.
Markets dipped across the board, with the FTSE 100 down 0.5% to 7,243.3 in early afternoon trading on Monday.
“The FTSE 100 started the week lower as 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.
“The US is in the enviable position of having relatively high levels of energy independence which insulate it from Putin’s proxy battle in the energy market as he looks to punish Europe for its support for Ukraine in the current conflict.”
“This step was not entirely unexpected and everyone will be looking for answers to the current crisis, however it seems unlikely investments in new sources of energy will bear much fruit in the short term.”
European markets sank, with the German DAX suffering the hardest blow as the index fell 2.3% to 12,744.6. The French CAC slid 1.5% to 6,070.9 and the Italian FTSE MIB dropped 2.1% to 21,455.5.
The Euro tumbled to a 20-year low, falling to 0.9930 dollars as the energy crisis ravaged Europe.
“Predictably, wholesale gas prices are soaring, raising the prospect of even higher energy bills for businesses and consumers and sending the pound and the euro to new multi-year lows against the dollar,” said Mould.
Liz Truss appointed Prime Minister
Analysts were vindicated after Liz Truss was appointed Prime Minister at lunchtime today, with the former trade secretary set to replace Boris Johnson instead of former chancellor Rishi Sunak.
The entering Prime Minister will have a tough term ahead of her, to say the least, with the war in Ukraine, the energy crisis and the dual hangovers of Covid and Brexit set to bring a challenging year for Johnson’s successor.
“Top of the agenda will have to be some kind of answer to the current energy crisis, with the protracted process of appointing a new leader leaving companies and consumers hanging for weeks after the alarming outlook for energy costs became clear,” said Mould.
The Pound fell against the dollar following the announcement, dropping to 1.14926 at 14:00 on Monday.
Oil companies rise as OPEC+ cuts output targets
Shell and BP shares gained 1.4% to 2,358.5p and 2.1% to 463.3p, respectively, after oil prices rose. The price of benchmark Brent Crude climbed 3.5% to $96 per barrel after OPEC+ announced plans to cut oil output targets by 100,000 bpd.
The organisation is expected to cut output, bringing further strength to the black gold’s prices.
Asian markets sink
Asian markets sank after China announced an extended lockdown in Sichuan Province capital Chengdu, keeping its 21 million population under quarantine. The city commenced a new round of testing, which is scheduled to take place from Monday to Wednesday this week. The Hang Seng slid 1.1% to 19,225.7.