Europe has been facing increased energy prices for months, but the uncertainty on supply is exacerbating the problem.
The imposition of economic and financial sanctions on Russia has reduced the contribution of one of the world’s largest raw material producers. The loss of Russia’s 4.3 million barrels per day of oil to fuel the global economic recovery has sent prices skyrocketing and, for Europe, the looming loss of Russian gas has hastened the urgency of accelerating the energy transition to renewables.
But while the combination of global supply chain disruptions, greater inflationary pressures and loss of consumer income has increased the probability of a near-term recession in Europe, ClearBridge remains confident in the region’s long-term attractiveness to investors.
According to Paul Ehrlichman, head of ClearBridge’s Global Value Equity investment team and his colleague Safa Muhtaseb, Russia’s invasion of Ukraine has spurred an admirable unification among European countries.
This forced realignment of priorities has led countries to recognise that safeguarding their national sovereignty requires developing a more unified approach to economic policy, further military spending and greater energy independence.
“The invasion has accelerated many of the long-term, resource-intensive transitions that support our pro-cyclical outlook and positioning,” the pair wrote in a recent paper.
But while unity alone is not enough to achieve these objectives, policymakers have already taken some key steps, responding with remarkable speed particularly in regard to energy dependence.
In early March, the EU announced its REPowerEU framework, which is intended to make Europe completely independent of Russian fossil fuels before 2030 and reduce the demand for Russian natural gas by two-thirds by the end of 2022.
Several European countries have already reversed the course of their energy policy to reconsider using nuclear power as a crucial component of their energy security, with Germany slowing the shutdowns of its existing nuclear plants and France committing to building six new ones.
“To achieve full energy independence and security, both the EU and individual countries must substantially increase their investment in renewable energy, energy storage and the infrastructure to support an updated electrical grid,” Mr Ehrlichman and Mr Muhtaseb wrote.
Despite the myriad of uncertainties, the pair are confident in Europe’s perseverance and strong investor benefits.
“We believe European equities remain the most compelling opportunity set globally,” Mr Ehrlichman and Mr Muhtaseb wrote.
“We continue to hold strong convictions in European financials and the crucial role they will play in helping Europe facilitate investments in industries needed to achieve greater national security and we believe them to be fundamentally well-positioned to withstand a recession that may result from a prolonged conflict.”
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
