Energy prices, particularly natural gas and crude oil, have surged significantly in recent weeks, driven by higher demand and new US sanctions on Russia. This sharp price increase poses a serious risk to the eurozone’s economic stability and threatens to push the region into stagflation.

Natural Gas and Crude Oil Price Surge

Natural gas prices have more than doubled since October 2024, from under $2 per million British thermal units (MMBtu) to nearly $4 per MMBtu. Cold weather in the northern hemisphere and rising energy demands have contributed to this sharp increase. Crude oil prices have also surged, with benchmark WTI and Brent futures rising to levels unseen since August 2024. WTI futures have risen by 17%, while Brent futures increased by 14% since early December, reaching $78 and $80 per barrel, respectively.

The price hike has been further fueled by new sanctions from the US government targeting Russian oil producers, including Gazprom Neft and Surgutneftegaz. The US has also imposed sanctions on 183 vessels involved in Russian oil exports. These actions contribute to heightened energy prices that could exacerbate inflation and economic uncertainty in Europe.

Risk of Stagflation in the Eurozone

The rise in energy prices poses a direct challenge to the European Central Bank (ECB), which is already grappling with inflation. If energy prices continue to climb, the eurozone could face a stagflationary scenario, characterized by high inflation, stagnant economic growth, and rising unemployment. The eurozone’s GDP growth is projected to be modest at 0.8% in 2024, but surging energy costs could undermine these growth projections and further strain the region’s economy.

Market analysts warn that the eurozone is at increasing risk of entering a period of stagflation, especially as the region struggles to balance energy policy with economic growth. As the ECB faces this challenge, the situation may only worsen if energy prices remain elevated.