The energy crisis: The drought has become a test for the entire economy

The extremely low flow of the Danube is not only a matter of environment and it is not only a temporary threat either for the nuclear power station in Cernavoda. The river connects several essential systems of Romania: the energy production, goods transport, industry and agriculture. When the water drops at critical levels, everything is affected almost simultaneously.   The shock comes at a particularly difficult time. The economy is stagnating, industry has been in decline for several years, and inflation remains high. Romania therefore has very little scope to absorb yet another blow without the effects being felt in companies’ costs, in prices and, ultimately, in economic output.   This is the main conclusion of the analysis ‘The Dry Danube: Romania’s latest macroeconomic stress test’, authored by Valentin Tataru, chief economist at ING Bank Romania. The author warns that the current crisis is caused by drought but exacerbated by delayed investment in energy and transport infrastructure. ING estimates that Romania’s GDP will contract by 0.5% in 2026 after growth of only 0.7% in 2025. ‘With figures so weak, there is almost no cyclical reserve for the absorption of a new shock’ Valentin Tataru says.   At Bazias, where the Danube enters Romania, the flow rate fell to 1,600 cubic metres per second on 31 July, compared with the usual average for July of 4,700 cubic metres per second. It subsequently fell to 1,500 cubic metres per second. The consequences are already evident: navigation has been disrupted, irrigation has been restricted, some ferry services have been suspended, and the authorities have been forced to manage water reserves to ensure the cooling of the Cernavoda nuclear power station.   The most urgent pressure has appeared in the energy system. The Cernavoda power station produces in normal conditions approximately a fifth of Romania’s electricity. After Danube’s level dropped under the necessary level for cooling operations, one of the two reactors was disconnected from the network. The authorities allocated funds for temporary works for redirecting the water towards the reactor still in action and the Army intervened with controlled blows to remove a rock formation. Valentin Tataru believes that the scale of the intervention shows the seriousness of the situation, but warns that an emergency measure should not be confused with an energy solution.   The fundamental problem is that Romania has an apparently balanced energy mix - hydro, nuclear, gas and coal, wind and solar energy - but several of these advantages depend on the same vulnerable resource: water.   „The diversity of technologies does not always mean the diversity of risks. Cooling nuclear reactors, hydroelectric production, river transport and some components of agriculture all depend on the same water system, which has become increasingly unsafe" the author explains.   Solar capacity has increased rapidly, including through installations made by prosumers, but flexible power plants, batteries for storing electricity and interconnections with central and western European states have not developed at the same rate. Projects for new nuclear reactors, gas plants, grid modernisation and retrofitting of existing capacities have been discussed for years, but many have not yet come to produce energy.   ‘The present crisis is, in consequence, partly a climatic shock and partly an implementation deficit. The improvised works compensate, in reality the failed investments decisions of yesteday’ states the ING Bank Romania head-economist. Valentin Tataru describes the current situation as a ‘stagflationary’ shock. The term may sound technical, but the mechanism is simple: drought can reduce economic activity and, at the same time, drive prices up.   Lower nuclear power output forces Romania to use more energy generated by more expensive technologies or to import electricity. The additional costs may subsequently be passed on to businesses and consumers. More expensive transport on the Danube may raise the price of raw materials and goods, whilst water and irrigation restrictions may affect agriculture and food prices.   The risk appears at a moment when inflation kept around the value of 10%for a period of four quarters, and the energy price liberalization already contributes to price rises. The ING basis estimate shows an inflation of approximately 6% at the end of 2026 but a prolonged energy shock would make meeting this level less sure.   At the same time, the Romanian industry was vulnerable even before the present crisis. The industrial production dropped by 3.1% in the first five months of the year and the manufacturing industry by 4.3%. The issues are not only temporary: weak demand from Western Europe, energy costs and financing ones, old equipment and competition difficulties have affected the sector even before the pandemics.   The suspension of production at Dacia and Ford until 19 August reduces electricity demand by approximately 200 MW. ING points out, however, that a distinction must be made between emergency shutdowns and companies’ normal schedules: Ford has stated that the summer break had been planned in advance.   The direct impact on GDP of a few weeks of reduced car production should not be exaggerated. Some of this can be made up for later, and summer is in any case a period of technical maintenance and holidays. The real cause for concern, however, lies elsewhere.   “The fact that the authorities are relying on large producers to help stabilise the system illustrates the limited options available in the short term. Energy-intensive producers are being asked to act as the informal mechanism through which the energy system absorbs the shock, at a time when the industry’s profit margins and appetite for investment are already under pressure,” says Valentin Tataru.   Low water levels do not just affect energy. When navigable depths decrease, vessels have to carry smaller loads, wait for conditions to improve, or transfer their cargo to road and rail transport, which is generally more expensive.   On sections of the Danube between Romania and Bulgaria, cargo ships have reportedly been operating at around half capacity due to draught restrictions. Additional charges have been introduced for navigation in low-water conditions, whilst in Romania there have been reports of grain barges stranded and ferry services suspended.   The stakes go beyond domestic trade. Together with the Port of Constanta and the Danube–Black Sea Canal, the river forms a strategic corridor linking Central Europe to the Black Sea, Ukraine and the Republic of Moldova. Its importance has grown since the start of the war in Ukraine, particularly for agricultural exports and alternative supply routes.   Romania keeps its strategic advantages: full membership to Schengen, highways development, Constanta port and European investment in infrastructure may consolidate its role as regional hub for production and transport. But the drought shows that it is not enough to build roads, railways or port facilities separately.   These systems need to be able to replace one another when one of them is blocked. If navigation on the Danube becomes difficult, the railways and roads must be able to take over the transport of goods quickly. And the new infrastructure must be designed for a climate in which longer and more frequent summer droughts can no longer be treated as exceptions.   The drought on the Danube will not, on its own, radically alter GDP growth from 2026 onwards. Some industrial output may be recovered, and the return of river flow may ease the pressure on energy and transport. But the cumulative effects show just how vulnerable Romania is.   “Each disruption may seem minor when viewed in isolation: a reactor shut down, a factory temporarily closed, a barge carrying a smaller load, or a ferry service suspended. Taken together, they expose the same structural weakness. For years, Romania has relied on its favourable geography and a diversified energy mix, without investing sufficiently in the systems that make these advantages resilient,” warns Valentin Tataru. Investments funded by European funds are, for the time being, offering protection to the economy. In the first quarter, investment rose by 2.2 per cent, whilst construction grew by 11.3 per cent in the first five months of the year. They are preventing a more severe contraction at a time when industry and consumption are in decline.   But the ING analysis shows that the success of the last PNRR stage does not need to be measured only through the sum spent before the deadline. It also matters if the projects financed reduce the economic cost of the next drought.   “Energy networks, storage capacity, interconnections, irrigation, rail links, access to ports and navigability are not separate public policy issues. They are components of the same resilience strategy,” the economist emphasises.   The real test will therefore begin once the water recedes. Romania can treat the current situation as an exceptional natural phenomenon and abandon the solutions once the crisis is over. Or it can recognise that adaptation to climate change, energy security, transport infrastructure and industrial competitiveness have become parts of the same economic problem.