Europe Is All Gassed Up

The EU has done an extraordinary job of offsetting the loss of Russian oil and gas due to Russia’s aggression in Ukraine. The early predictions were, quite frankly, dire. Germany seemed the most at risk. News “analysis” of how Berlin was moving toward encouraging citizens to take cold showers and turn the thermostats way down throughout the winter months lit up in the media.

But the EU aggressively tapped into old and new global LNG markets to make up for what Russia could no longer supply. By way of example, we would point to Mozambique exporting LNG to the EU for the first time - an economic win for Mozambique, one of the world’s poorest countries which also possesses Africa’s largest offshore gas fields.

Add to this unusually mild weather in the EU in October and November (so far), and we have to believe they will make it through the winter without having to implement draconian measures. We still have months of winter to go, but the outlook is, for now, we believe quite positive. We will continue to keep our eye on the state of the EU gas storage stats, but one has to believe this is not what Russian President Vladimir Putin had hoped for at this point.

European Union Natural Gas Storage as of November 18, 2022. (Source: Bloomberg LLP)

When the gas gets shut off: Which EU country will get hurt the most

Great chart from the IMF courtesy of Axios. It tells the whole story very neatly:

Why it Matters: Italy’s latest political crisis could result in EU turbulence

We have been watching closely the political crisis in Italy these past few weeks which resulted in Prime Minister Mario Draghi resigning. Italian politics are always complex and at times bewildering. There have been 66 changes of government in Italy since the end of World War II. But this change could be a shock to not only Italy but to the rest of the European Union.

A snap election is to be held on September 25th but polls today show the Brothers of Italy Party with a clear majority. The right-wing party, whose name comes from the Italian national anthem, is led Giorgia Meloni. They have formed a coalition with other right-of-center parties including Forza Italia (led by former Prime Minister Silvio Berlusconi) and the Italian League (led by Matteo Salvini) and the populist Five Star Movement. Together, they would form what would be seen as the most conservative - both fiscally and socially — political party in the EU.

If elected, markets should expect a much more disruptive Italy within the EU governance structure, challenging the EU rules over budget and other issues including migration and social issues (including gay rights and abortion). Most investors have become worried Italy carries too much debt now. A Brothers of Italy coalition would not make debt reduction a priority.

If elected, Meloni would become Italy’s first female premier. She has made clear, however, that Italy will continue to support Ukraine in the war effort against Russia.

We will be tracking this election closely and sharing our analysis going forward. Here are the latest polls: