Drought in Europe linked to the lifting of sanctions against Russia

Extreme heat and strong fires have caused the most difficult climate situation in the EU. Europeans say that “the apocalypse has come.” However, economists are confident that the real test is yet to come. For temperature anomalies in the Old World may come the growth of the economic crisis. The EU is experiencing a shortage of energy resources, the consequences of a pandemic, a reduction in food supplies, geopolitical upheavals. Will the heat in the EU affect the Russian economy and the lives of our citizens, experts said.

Nature could not think of a more unfortunate moment for a ferocious drought in Europe, unseen in five hundred years. It can worsen the already problematic situation of the population of the Old World.

As the chief analyst of Sovcombank Natalya Vashchelyuk said, firstly, there are risks for the harvest of various crops, for example, corn, sunflower, wheat, soybeans. Secondly, a significant part of heavy cargo is transported along the rivers – coal, chemicals, oil products. The shallowing of the rivers means that large ships cannot carry goods on them, and smaller barges have to be used. This significantly increases transportation costs, which creates additional inflationary risks.

If the heat continues, the volume of water could drop to a level at which navigation on the continent would become completely impossible. And the resources of road and rail transport to solve logistical problems are limited. Bloomberg estimates that it takes more than 100 trucks to replace one average barge. Meanwhile, in Germany, the shortage of truck drivers is estimated at 80,000.

Thirdly, the energy crisis may intensify. Coal is delivered along the Rhine to thermal power plants in Germany, whose work is now supposed to compensate for the decrease in Russian gas consumption.

Fourthly, during periods of heat, electricity consumption increases due to the use of air conditioners. Fifth, water consumption is limited, drinking water is delivered to some regions by road. “The drought in the EU is able to support prices for certain types of agricultural products and gas imported there at a higher level, which is favorable for Russia’s export earnings,” concludes Vashchelyuk.

However, experts disagreed on how critical all of these factors are, because we are talking about a very rich region. “The countries of Europe are open economies,” recalls Natalya Shagaida, director of the Center for Agricultural Policy at the Institute for Applied Economic Research (IPEI) of the RANEPA. The EU is one of the largest exporters in the world. With an unfavorable own harvest, they will simply increase imports.”

Estimates for cereals, sunflower oil, sugar in the world are still favorable, although the FAO (Food and Agriculture Organization of the United Nations) notes droughts in the US and the EU. This reduces the forecast figures for the gross harvest, for example, for corn, but only slightly. For the world wheat harvest, the forecast is higher than last year, as well as for vegetable oil, as well as for sugar production, the expert points out. In her opinion, for Russia, the drought in Europe means that its share in world exports may increase. As for the food price index, according to the FAO, it continued its four-month decline in July, Shagaida points out, so not everything is so critical.

“The drought can lead to a decrease in the harvest, and the European Commission has already expressed concerns about this,” Dmitry Leonov, deputy chairman of the board of the Rusprodsoyuz association, enters into the discussion. The threat of crop decline this summer is recorded in France, Romania, Spain, Portugal, Italy, Germany, Poland, Hungary, Slovenia and Croatia.

“The consequences will be manifested in a noticeable slowdown in the European economy,” said Mark Goykhman, chief analyst at TeleTrade. — Bloomberg’s previous forecast for 2022 is a 2.7% increase in EU GDP. But, probably, in the current reality, it should be considered positive if the growth is 1-1.5%.”

The complication and limitation of the supply of resources and goods will inevitably mean an increase in inflation. It can accelerate in the EU to 8-8.5% this year. This will especially affect the prices of energy carriers, freight and passenger transportation, and food. According to Goykhman, under such conditions, certain relaxations in the EU sanctions policy towards Russia are possible.

Russians can also feel problems with the harvest in Europe right in their diet – when, for example, olives become more expensive in stores or olive oil disappears. According to Leonov, if suppliers from Greece and Turkey can compensate for the drop in import volumes for olives, then it is more difficult with oil from these berries. If suppliers – Spain, Italy and Greece – have problems with the harvest, then an alternative will have to be sought only in domestically produced sunflower oil.

Continuation of the topic – in the material “Hot apocalypse in Europe: nuclear power plants rise, olives are destroyed”

Published in the newspaper “Moskovsky Komsomolets” No. 28847 dated August 16, 2022

Newspaper headline:
The heat of our anxiety