The energy situation in Germany is "very worrying" as it could have considerable effects on economic growth and of course "much higher" inflation, Deutsche Bank has warned.
"We are becoming increasingly concerned about the unfolding energy situation in Germany," said George Saravelos, global head of FX research the bank, in a note to clients on Thursday.
This followed Russia reducing Nord Stream gas flows by 60% two weeks ago on the back of an alleged disruption over supplies of parts from Siemens.
The energy market is "starting" to price a risk of a complete disruption to gas supplies for winter, Saravelos said, though noting that the immediate availability of gas in Germany is so far "not an issue".
Natural gas prices for the year ahead are hitting fresh record highs, he noted, but even concerning to him was electricity prices for 2023 delivery rocketing to all-time highs, having now tripled from the start of the year.
French and Italian electricity prices are similarly soaring.
The share price of Uniper, Germany’s largest buyer of Russian gas, fell over 20% to below €13 for the first time since 2016.
The Nord Stream 1 pipeline is set to shut for ten days during July 11-21 for maintenance, with media reports suggesting that authorities are attempting to find a solution on sanctions restrictions to move gas turbine components back to Russia.
Germany's government is concerned over the shutdown, fearing that the flow of gas will not be turned back on, the Financial Times reported.
"If the gas shutoff is not resolved in coming weeks we worry this will lead to a broadening out of energy disruption with material upfront effects on economic growth, and of course much higher inflation," said Saravelos.
"Beyond the market's worries about slower global growth in recent months, what is unfolding in Europe in recent days is a fresh big negative supply shock."
Saravelos said it will "clearly" make the job of the European Central Bank more difficult and will provide "clear downside" for the euro-dollar exchange rate.
"Not only would the energy import bill rise due to even higher prices, but it would raise the risk of an imminent German recession on the back of energy rationing."
While Deutsche's EUR/USD forecasts imply a range-bound euro over the summer months, he said the energy situation is "providing clear downside risks".