The economic impact of the Russian invasion of Ukraine is becoming clear, though it remains contingent on the course of events. Huge volatility in the financial markets – and those for gas and oil – reflects great unpredictability. A significant hit to consumers and businesses is inevitable, but how deep and long-lasting this will be remains unclear.
The Government has reacted via a reduction in excise duty on petrol and diesel. This will offer some relief to motorists, although, as Ministers said, it cannot absorb the total impact. Further upward pressure on prices is possible.
Assuming current trends hold on wholesale markets, the Government will also have to move to offer some additional protection to lower income households from rising gas and electricity prices. Demand – and thus bills – will fall in the summer, but the scale of wholesale gas increases has been unprecedented and as well as feeding directly into gas bills, this will push up electricity costs. More will need to be done, in addition to the measures announced a few weeks ago.
The European Commission, in its latest response to the crisis, has also suggested that temporary supports to businesses may be required. Irish companies are heavy users of gas, as well as electricity, and the Government will need to consider the threat to jobs and competitiveness.
Just as the worst of the Covid-19 crisis appeared to be passing, the economic outlook has again been upended. As Minister for Finance Paschal Donohoe said yesterday, what is happening is a result of war and the greatest costs are being borne in Ukraine. The arrival of Ukrainian refugees here will in itself involve a significant cost, but is an essential task. And looking at the wider economy, the Government here faces significant short and longer term uncertainties.
A key wider economic message relates to the vital role of energy security. Strategic energy debates have centred – correctly – on the need to reduce carbon emissions. To this imperative is now added the need to ensure a secure supply of energy and while Ireland does not have a significant direct reliance on Russian energy, threats of disruption to supply could feed through here.
For Ireland, the carbon and security agendas both point in the same direction – towards the exploitation of renewable energy, notably from offshore wind. Expediting the development of this resource is a policy imperative – and a significant opportunity. But the question remains: how to fuel the economy and society in the transition, as these renewable resources are developed. And as the EU plots a quick move away from reliance on Russian gas, the challenge of managing this is growing significantly.
A Government paper on energy security is already overdue. It has now taken on a new and vital importance.