Europe’s focus on reducing dependence on Russian energy supply could lead to higher risk of stagflation, according to Zehrid Osmani of Edinburgh based asset manager, Martin Currie.

Ms Osmani, who is head of global long-term unconstrained at Martin Currie, said: “The Ukraine-Russia conflict has brought to the forefront the important strategic consideration of energy supply in Europe, and the dependence on Russian energy supplies, notably gas, for many EU countries.

“There is now an ambitious plan to considerably reduce this dependency, with the aim of diversifying energy supplies away from Russia. This will lead to some important alternative energy infrastructure programs notably in Liquid Natural Gas (LNG) infrastructure, but it could also bring some temporary disruptions in energy supplies.”

Mr Osmani believes these disruptions could be the result of Russia reducing its supplies, whilst Europe has decided to reduce its demand despite not having a fully secured alternative supply.

He continued to note how this disruption might contribute to a higher probability in Europe, commenting: “We could see energy rationing in parts of the EU, which could have the risk of impacting economic activity in Germany notably, but also Italy, Poland and the other EU countries – the EU gets c.38 percent of its gas supplies from Russia.

“Should this happen, there would clearly be a higher probability of stagflation in the EU region, brought about by energy supply-shock. This is an important geopolitical aspect to monitor, given the direct impact it would have on the macro-economic momentum in the region.”

Martin Currie, part of Franklin Templeton, recently aim to bolster its Global Long-Term Unconstrained team with the hire of two investment analysts.