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Energy crisis intensifies as gas prices surge

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The energy crisis sparked by Russia’s invasion of Ukraine intensified today as gas prices skyrocketed and the US warned of another rise in oil prices unless major importers agree to limit the amount they pay for Russian crude.

The rise in European gas prices this morning by a further 12 percent comes on top of a rise of more than a third so far this week. They are now at about 10 times the price from last year before Russia started throttling supplies.

Gascade, the German gas grid operator, said this morning that flows on Nord Stream 1, which connects Russia to Germany, had been roughly halved to 20 percent of capacity. Russia says the reduction was the result of turbine problems, exacerbated by Western sanctions.

The EU, which relied on Russia for 40% of its supplies before the invasion of Ukraine, is struggling to get member states to agree to a voluntary 15% reduction in consumption to help fill storage depots for the winter . Agreement has finally been reached, but with a long list of opt-outs, the target was allowed to become binding. Rationing and shortages this winter are a real prospect, especially if Russia tightens its grip.

Italy’s outgoing Prime Minister Mario Draghi stressed the magnitude of the challenge, saying his country’s “unacceptable energy dependence” on Russia was “the result of decades of short-sighted and dangerous choices”.

Energy companies, meanwhile, are benefiting from the turmoil, with Norway’s Equinor and Spain’s Iberdrola both reporting record profits today. European oil and gas giants BP, Shell and TotalEnergies, all of which are reporting gains in the coming week, are generating more money than ever, raising the prospect of large-scale acquisitions to boost their clean energy transition.

On the other side of the Atlantic, the biggest concern is high gasoline prices, which have weighed on US consumer confidence. Although prices have fallen in recent weeks, the market remains extremely fragile, reports our Energy Source newsletter (for Premium subscribers).

The Biden administration is trying to get major oil importers like China and India to agree to a price cap for Russian crude oil to avoid an even more damaging rise in fuel costs. India’s reliance on imported oil could nevertheless derail the country’s pandemic recovery, and given its growing importance as a consumer market and manufacturing hub, this could only heighten fears of a global slowdown.

The US also joins the EU’s ban on insurance and services for ships carrying Russian oil, but fears the expected drop in exports could short-circuit markets and push prices up.

However, one aspect of European energy policy that the US is unlikely to follow is calling on citizens to be more frugal. Trying to do that would be political suicide, reports US correspondent Myles McCormick.

As one industry advisor puts it: “In Europe they say you turn down the thermostats and you will find your way to freedom. President Jimmy Carter put on a vest and said the same thing – and he lost his reelection.”

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Need to know: the economy

The US Federal Reserve is announcing its interest rate decision today at 2pm ET / 7pm UK amid rising consumer prices and mounting fears of a recession. Check FT.com for details and the latest response.

The IMF released a dismal update on its global economic outlook, highlighting risks that were “overwhelmingly downside.” The fund cut its growth forecast for 2022 to 3.2 percent, down 2.9 percent for next year. Inflation forecasts rose to 8.3 percent this year and 5.7 percent in 2023.

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Latest for UK and Europe

Long Covid is costing UK workers £1.5bn in lost revenue and looks set to have a lasting effect on the economy, according to new research. About 2 million people had symptoms in May, and the number of patients with the condition has doubled in the past year.

A UK parliamentary committee said the government should provide immediate assistance to households struggling with: rising energy costs or more damage to the economy in general. Candidate for Prime Minister Rishi Sunak said he would cut VAT on bills. Our Money Clinic podcast offers some practical tips for managing rising prices and higher interest rates.

Brussels said ItalyThe next government failed to renegotiate the basis of the EU-funded €200 billion recovery plan for Covid-19 and must keep its promises on economic reforms. Polls suggest the September 25 elections could lead to a victory for Italy’s far-right Brothers.

Worldwide last

El Salvador said it would buy back $1.6 billion of its Treasury bonds to avert fears of default. The bonds have traded at huge discounts since bitcoin was introduced as legal tender alongside the US dollar in September 2021.

What determines the current? global food crisis What’s different is that there are multiple causes, our latest Big Read explains, from conflict in Ukraine to drought to supply chain problems that predate the pandemic. The UN Food and Agriculture Organization predicts that the war alone will increase the number of malnourished people by 13 million this year and another 17 million by 2023.

The policy of strict inflation targets for central banks has caused economic damage, says financial historian Edward Chancellor. When an institution is guided by a specific target, critical judgment is usually suspended, he says. Chief economics commentator Martin Wolf weighs the Chancellor’s arguments against those of former Fed Chairman Ben Bernanke in our latest book essay.

Need to know: business

One of the most notable aspects of the second quarter earnings season was: price increases of the major consumer goods companies such as Unilever, Kraft Heinz, McDonald’s and Danone as they respond to higher prices.

Retailers also report changing consumer behavior as times get tougher: Walmart, the world’s largest, issued its second profit warning in 10 weeks this week.

E-commerce is not immune: Shares in Shopify plummeted after it said it would lay off 10 percent of its employees, explaining that it had made a mistake in believing the online retail pandemic wave would continue. Amazon blamed inflation for increasing the cost of its Prime membership service in Europe, while Chinese rival Alibaba scaled back its global expansion plans.

Energy costs are also a recurring feature of this week’s results stories. Frozen food store Iceland warned of the hit today to keep its freezers running. Grocers such as Aldi are also facing increasing pressure on the labor market.

The technical sector been a little more optimistic. Microsoft said it was confident in meeting its full-year targets despite a weaker PC market and a stronger US dollar. Google parent company Alphabet reported “solid growth” in its core markets, even as economic uncertainty hit ad spend.

Also good news from the luxury sector, where Louis Vuitton benefited from strong sales in the US and a tourist boom in Europe that helped outweigh the effect of the lockdowns in China. German automaker Mercedes raised its sales forecast after taking advantage of rising demand for its more expensive models.

Financial services companies reported mixed fortunes. Lloyds beat earnings forecasts on interest rate hikes and mortgage business; Credit Suisse lost; Deutsche Bank dropped its full-year cost target; and UBSThe world’s largest asset manager, reported lower-than-expected gains as clients “stayed on the sidelines” amid volatile markets.

Post-Brexit regulation will cost the UK chemical industry £2bn in red tape – twice the original estimate. Both candidates for British Prime Minister have pledged to review all retained EU laws and scrap onerous rules, but replacing them with UK regulations is likely to prove costly and disruptive. Experts have also warned of a “gap” opening between UK and EU standards for hazardous chemicals.

The Qatar Airways Chief told the FT the airline disruption would last for years as he outlined his company’s blow to staff shortages in Europe, delivery delays and a lack of spare parts. Heathrow Airport warned it could extend its limit on flights.

The world of work

Bosses may like to get people back to officeHowever, many employees who have experienced a new sense of autonomy from working from home are not so enthusiastic. Isabel Berwick and guests discuss how to resolve the deadlock in the new Working It podcast.

Covid cases and vaccinations

Total number of worldwide cases: 566.3mn

Total Doses Administered: 12.3 billion euros

Get the latest global photo with our vaccine tracker

What good news…

It’s a golden time for sports fans with the Lionesses of England roaring towards the Euro 2022 final on Sunday, heroic performance on the World Athletics Championships and the commonwealth games start tomorrow. Today also marks the tenth anniversary of one of the greatest spectacles ever held in Britain: the London 2012 Opening Ceremony. Make yourself a nice cup of tea and relive the full experience here.

London 2012 Olympic Games Opening Ceremony
It’s been ten years since the games started. . . © REUTERS

The work — Discover the big ideas shaping today’s workplaces with a weekly newsletter from work and career editor Isabel Berwick. Sign Up here

The climate graph: explained — Understand the week’s key climate data. Sign Up here

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