The energy threat intensifies

The casual use of the word 'meltdown' to describe what is going on in financial markets is a bit of hyperbole best discarded, given events at Japan's nuclear power stations.

Of all the business casualties of the earthquake and tsunami, the reassessment of the nuclear power industry may be the longest lasting.

It is not just Tokyo Electric Power which has built plants in earthquake zones so has California.

Financial markets have reacted in more or less the predicted way to the disaster north of Tokyo.

Share prices on the Nikkei shed 6.18pc, the yen yo-yoed and bond prices eased as the Bank of Japan flooded the markets with cash. The dollar and gold, as supposed safe havens, will eventually strengthen.

What we should not forget is that the Japan disaster is layered on other global uncertainties. Colonel Gaddafi may be back on top in the Libyan civil war but the tension in the region is far from over.

At the weekend Bahrain was again the scene of big demonstrations, Egypt's future is still in the balance and the Saudi regime faces serious challenges.

Indeed, if nuclear is taken off the table for the time being and there is to be a thoroughgoing review in the US Congress and Germany of all nuclear approvals then the supply pressure on oil, natural gas and alternative fuel supplies could keep energy prices very high. That in itself is a threat to global growth.

Amid the turmoil it has barely been noticed that the Eurozone has again stitched together a market-calming deal just as it looked as if Portugal and Spain would need to be rescued.

The European Financial Stability Fund was extended so that the whole 440bn euro (£279bn) bailout pot could, if required, be spent on buying sovereign debt. Both Greece and Ireland were also given more time to repay their bail-outs and the cost was lowered.

That should help provide some temporary relief in euroland. The biggest threat to global output, after the tragedy and desolation in Japan and the nuclear failures, looks to be from surging oil and gas prices.

From The Daily Mail, 15 March, 2011

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