European shares tumbled on Monday after Russia extended a halt on gas flows on a major pipeline to Europe, sparking worries about surging energy prices and winter shortages in the region.
The Europe-wide STOXX 600 index fell 1.7% in the first hour of trading, while Germany’s DAX index sank 3.1%, eying its biggest one-day percentage fall in two months.
German utilities including Uniper, RWE, E.ON and PNE dropped between 2.9% and 10%.
Gazprom announced late on Friday that the main pipeline to Germany would remain closed indefinitely, against expectations of a restart on Saturday after three days of maintenance work.
The Kremlin blamed European politicians on Sunday for keeping the major gas pipeline shut, saying their economic sanctions had hindered maintenance of the pipeline.
EU countries’ energy ministers are due to meet on Sept. 9 to discuss options to rein in soaring energy prices including gas price caps and emergency credit lines for energy market participants, a document seen by Reuters showed.
“It had looked earlier in the day that (the pipeline) would reopen this past weekend, but the late news was thought by some to be signs that Russia was using its full leverage over Europe,” said Deutsche Bank strategist Jim Reid.
“Europe has done a very good job over the last couple of months, in getting gas storage levels high and increasing imports from elsewhere, but if there are no more gas flows from Russia, we are likely touch-and-go in terms of getting through the winter without notable restrictions/rationing.”
The STOXX 600 stared at what could be another round of selling pressure this week as record high inflation and heightened bets of a large interest rate hike by the European Central Bank also added to the gloom.
Italian government bond yields led a rise in euro zone bonds on Monday, while the European benchmark gas contract soared 30% at the open.
Separately, data showed Germany’s services sector contracted for a second month running in August as domestic demand came under pressure from soaring inflation and faltering confidence.
Energy stocks were among the rare gainers in Europe, last up 1.2% amid rising oil prices.
Zurich Insurance Group said it intends to exercise its option to redeem 450 million pounds ($515.93 million) of subordinated debt. Its shares fell 1.1%. (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Sriraj Kalluvila and Saumyadeb Chakrabarty)