Finance Minister Clyde Caruana said he is more concerned about the Iran war’s potential impact on the dollar–euro exchange rate than about its effect on energy prices.
Addressing Parliament, Minister Caruana pointed out that the dollar typically strengthens during times of war while the euro tends to weaken as investors seek the relative safety of the US as the world’s largest economy and military power.
“Before the war, €1 was worth around $1.19 but it’s now gone down to $1.16. This means each euro can buy fewer dollars, which means you have to pay more for the same goods.”
He pointed out that when the Ukraine – Russia war broke out four years ago, the euro even fell below the dollar to as low as $0.95c.
“It hasn’t depreciated as much yet but we’re already seeing hints that it’s getting weaker,” he said “It all depends how long the war lasts. If it goes on for just a few weeks, then the euro won’t weaken but if it drags out, there is a substantial risk of the euro weakening.”
He said the result is that eurozone countries, including Malta, will have to pay more for goods priced in dollars, which pushes up prices.
“What concerns me most, more than energy sources per se, is what will happen to the euro as a currency.”
In terms of energy, Caruana said Europe is unlikely to experience the same level of economic shock from the Iran war as it did following the Ukraine war.
This is because the Ukraine war significantly drove up the price of natural gas – a major Russian export – which peaked at around €350 per MWh before sinking again.
Although gas prices have increased in the wake of the Iran war, they have only risen to some €50 per MWh, with the conflict having a larger impact on oil markets.
Meanwhile, the EU has reduced its dependency on gas, largely thanks to a push towards renewable energy.
While fossil fuels amounted to some 40 per cent of the energy used to generate electricity across the EU when the Ukraine war broke out in 2022, it has since dropped to 30 per cent.
“This means that in just four years the EU has substantially reduced its dependence on fossil fuels and will continue doing so to ensure the experience we had in 2022 does not repeat itself to the same extent.”
“I’m not saying the situation isn’t serious but the numbers show that this sort of war is different to the Ukraine one in terms of energy."
