The recent increase in global oil and gas prices has begun to affect Serbia’s domestic market, though not always directly. Oil, a critical component in the production of many everyday items—from plastic bottles to car tires—sees price shifts that can influence production costs. Meanwhile, gas prices affect electricity costs on the European market. The recent surge in these energy prices has had repercussions in Serbia, particularly for the Electric Power Company of Serbia (EPS), which is struggling with its own production issues and is paying high prices for imported electricity. Experts suggest that this has significantly eroded the profits EPS had accumulated earlier this year.
Last week, oil prices rose due to concerns about potential escalation in the Middle East conflict and strong economic data from the US. However, by the end of the week, prices softened to $79.68 per barrel for Brent crude, a decrease of $1.36 or 1.7% from the previous week. Market volatility continues as traders remain cautious about possible supply disruptions due to geopolitical tensions.
According to Danilo Pavićević, a financial analyst from Momentum Securities, macroeconomic factors such as robust US economic activity and a strong labor market can drive oil prices up. However, they might also result in prolonged higher interest rates, potentially slowing future economic growth. Pavićević notes that fluctuations in global oil and gas prices can have adverse effects on domestic markets, and while the state can influence certain components like taxes and excise duties, long-term control over oil prices is challenging.
Gas prices, which have risen recently due to geopolitical issues in the Kursk region, impact electricity costs in Europe. In Serbia, where gas is partly imported from Hungary and there is a contract with Russia, domestic gas prices might be somewhat insulated from recent European market fluctuations. However, the price of gas affects electricity production, as many European plants rely on gas. Higher gas prices mean increased costs for electricity imports. This issue is particularly pressing for EPS, which has been importing electricity due to problems with its own production. Energy expert Miloš Zdravković points out that gas prices typically rise until November, affecting electricity prices and trade.
The financial strain on EPS, which had to borrow from the International Monetary Fund (IMF) two years ago due to its inability to produce sufficient electricity, has been exacerbated by high import costs. In July alone, EPS spent 45 million euros on electricity imports, significantly impacting its finances for the year. The IMF’s role is primarily focused on assessing income and expenditure, with potential recommendations for increasing electricity prices or providing additional credits to EPS.
As a response, the Serbian government might implement measures to mitigate the impact on consumers and the economy. These could include reducing excise and fuel taxes temporarily, subsidizing sectors most affected by rising energy costs, and promoting energy efficiency and alternative energy sources. Such measures could help ease the financial burden on both consumers and businesses amid ongoing energy price volatility.
In summary, the global rise in oil and gas prices is having a tangible impact on Serbia’s energy costs and EPS’s financial stability. The Serbian government and EPS face significant challenges in managing these pressures and ensuring a stable and affordable energy supply for the country.
