Scope Ratings: Greece vulnerable to Middle East conflict

Greece is particularly vulnerable to the effects of the Middle East conflict, given its dependence on fossil fuels in the energy mix, while Greek banks are facing new difficulties due to geopolitical developments, according to a report by the financial rating agency Scope Ratings, Kathimerini reports, according to Agerpres.

The economic, fiscal and financial effects on European countries will depend mainly on the duration and intensity of the conflict, whether the crisis spreads to the region, and how resilient individual economies are, the agency says.

In the scenario in which the conflict is short-lived and relatively limited, the macroeconomic and financial consequences would be manageable for most states, with central banks and governments taking measures to keep temporary inflationary pressures under control, without significant interventions. However, if the situation evolves into a prolonged and widespread conflict in the region, the consequences will be more extensive for countries involved in or geographically close to military operations, for economies with significant exposure to global energy supply chains, especially in the Middle East, as well as for states with limited fiscal space to absorb the social and economic pressures caused by stagflation.

According to Scope, prolonged instability in the Middle East could have significant effects on the global level. A prolonged disruption of export facilities, energy infrastructure or the Strait of Hormuz, combined with increased regional instability, increases the risk of a negative supply shock. As a result, oil and gas prices would increase and, implicitly, with potential economic, fiscal and even political consequences.

In this context, Europe is the most vulnerable region, given its dependence on fossil fuel imports, especially liquefied natural gas (LNG). Although Scope believes it is unlikely that natural gas prices at the Amsterdam TTF gas hub, where Europe's benchmark prices are set, will return to their high levels of 2022, a prolonged period of high energy prices could have broader macroeconomic implications for Europe and Greece.