The European economy is deteriorating, and the chances for investment in the near term will remain "bombed out" until the region addresses the energy deficit and cost issue, according to Gary Korolev, CEO of the financial services business Sovereign Wealth Management.

"The only positive near-term prospect for investing in Europe right now is that sentiment is so bombed out, the market usually looks for an opportunity for a countertrend rally at a time like this," Korolev said. "Otherwise, the trend is still toward harder times for Europe until they figure out the energy deficit/cost issue."

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Korolev emphasized that Europe cannot exist without Russian energy, yet Germany, the region's economic engine, continues to prepare to shut down its nuclear reactors despite huge energy challenges.

"Nuclear is the only way to at least partially alleviate Europe’s energy problems without the use of Russian gas," he said. "There is nowhere near enough compressed natural gas to go around and whatever can be delivered to Europe is at a much higher price than the pre-February 24 prices at which the gas was flowing to Europe through the Russian pipelines."

Korolev went on to add that energy is the lifeblood of the economy and that increasing energy prices will make Europe, which already has relatively high labor expenses, even less competitive in comparison to emerging nations.

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"This spells trouble for the famous European trade surplus," he said. "It is quite likely that political turmoil due to European electorates being very dissatisfied with high energy bills and high unemployment will filter through to change of heart in most, if not all of the western European administrations. This may take a couple of years, enough for the politicians to save face, but our base case is it has to happen eventually."

Since 2021, European energy and food prices have been rising as part of a global trend, owing in large part to the COVID-19 restrictive policies. Fuel and food costs have risen since the beginning of Moscow's special military campaign in Ukraine and the introduction of sweeping sanctions against Russia by the collective West, forcing several European countries to turn to precautionary measures.

Russia oil price cap deal likely to stand but ineffective: US Investor

The price cap mechanism scheduled to be imposed on Russian oil will likely remain in place but will be ineffective due to a lack of enforcement required by market realities, according to Gary Korolev, CEO of financial services firm Sovereign Wealth Management.

"The deal, like all others, is likely destined to slowly fade into irrelevance," Korolev said.

Korolev pointed out that geopolitics is often more about posturing and showing strength even if the actual strategy has failed, and the collective West is already buying Russian oil on the black/gray market and paying a huge premium for it.

"This new deal will likely officially stand, however, de facto will be toothless due to the many exceptions, loopholes, and lack of official enforcement necessitated by the market realities and the needs of western countries to keep their economies from grinding to a standstill," he said.

Moreover, the US Treasury revealed that buying considerable amounts of Russian oil above the price cap agreed upon or providing fraudulent data or documentation of the transactions may bring about sanctions enforcement. 

"Persons that make significant purchases of oil above the price cap and knowingly rely on service providers subject to the maritime service's policy, or persons that knowingly provide false information, documentation, or attestations to such a service provider, will have potentially violated the maritime services' policy and may be a target for a sanctions enforcement action," the guidance said.

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Last month, the European Union prepared for emergency action to reform the electricity market and hold the energy prices in its grip, especially since they have soared since the war in Ukraine began, according to senior officials. 

The high gas prices have been followed by disruptions in the nuclear and hydroelectric sectors against the backdrop of a heatwave due to climate change, threatening businesses, and households with bills beyond affordability. 

"The skyrocketing electricity prices are now exposing the limitations of our current electricity market design," said EU Commission president Ursula von der Leyen. 

"It was developed for different circumstances. That's why we are now working on an emergency intervention and a structural reform of the electricity market."