Data | Energy inflation in Europe peaks at 40% as Russia squeezes oil supply

Despite high dependence on Russian oil, supply to most European countries has taken a hit

In the seven months following Russia’s invasion of Ukraine, the tables have turned. Initially, major financial and commercial sanctions were imposed on Russia by the U.S., the U.K., the European Union and other nations. This had a telling effect on the rouble, which was trading at 81 per dollar before the invasion and by March fell to 151. However, the rouble recovered quickly in the following months, and by May, it went back to the pre-invasion levels.

In the months following the invasion, tougher sanctions against Russian oil and gas remained a contentious subject for countries in the European region. This was because a quarter of the region’s oil needs were met by Russia before the war. After much deliberation, the 27-nation bloc decided to cut off Russian oil that comes by ship from December 5. Russia also has increasingly decreased its oil exports to the European region and is planning to reduce it further if the U.S. and other nations go ahead with a price cap on its oil.

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Data shows that a combination of supply-squeeze from Russia and self-imposed import restrictions have led to a sudden surge in Europe’s energy prices. Inflation across the European region spiraled up uncontrollably since the Ukrainian invasion. Chart 1 shows the month-wise inflation rate in the European Union since 2010 across various sectors.

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Energy-related inflation started to rise post the war and accelerated to over 40% in recent months. While the overall inflation and food-related inflation have surged to 10-year highs in recent days, their increase pales in comparison to the rise in energy prices.

The impact of rising energy costs was felt across all European nations. Chart 2 shows the energy-related inflation rates in select European countries. In the U.K., energy inflation crossed the 70% mark, and in Spain, it crossed the 60% mark, while in the Netherlands it almost touched 100%. In all the nations analysed, the energy-related inflation levels have reached at least a 10-year peak.