2022 began under the continued influence of COVID-19, but the crisis substantively ended by the beginning of the second quarter. The spread of vaccines reduced the hazards of the virus and allowed the state to restore the free movement of people, which entailed a rapid increase in economic activity, and the corona crisis was forgotten by the second half of the year.

However, before the corona crisis fully receded, a new crisis started. The decision of Russia’s president to launch an invasion into Ukraine triggered a full-scale war in Europe, which nations had managed to avoid for the past 77 years. The subsequent economic sanctions of the western world against Russia caused a steep increase in energy and raw material prices. That in turn added a boost to the wave of inflation which had raised its head when the COVID-19 restrictions were removed and the root cause of which was the central banks’ aggressive money-printing to alleviate the corona crisis. In order to manage the situation, the central banks had no other option than to start raising interest rates. While at the beginning of March the interest rate of the US Federal Reserve was around zero, by the end of the year it had been raised to 4.33 percent. Even the base deposit interest of the European Central Bank was for the first time in ten years again raised above zero and by the end of the year it reached 2%, which was last seen in 2008. The stricter monetary policy caused a decline in economic activity, which decelerated economic growth. According to the World Bank, the global economic growth reached the highest level in the past 50 years, or 5.9% in 2021, the forecast economic growth for 2022 was 2.9%, with a further decrease to 1.7% in 2023.

The small and open Estonian economy responds to events taking place in the global economy promptly and intensely. The overall price rise caused by an increase in the prices of the main energy carriers accelerated from month to month and the average increase in consumer prices was 19.4% in Estonia in 2022. At the backdrop of that, the gross domestic product calculated in real prices decreased by 1.3% in 2022, while just in the previous year it had achieved its fastest growth in the past 15 years at the level of 8%. The price increase caused a strong pressure to raise salaries which grew at their fastest pace since 2008, rising by 8.9% on the average. As the salary increase was significantly smaller than the price increase in 2022, the purchase power of Estonian people decreased in real prices. At the same time, it was the first time in the past 12 years when the average salary in Estonia grew more slowly than the consumer price index.

The economic results of the VKG Group are influenced the most by developments in the global oil market. The economy opening up after the corona crisis receded entailed a continued increase in demand also in 2022 and in the first one and a half months the Brent barrel price grew from 80 dollars to 93 dollars. The subsequent war in Ukraine hurled the Brent price to the level of 128 dollars a barrel by the beginning of March, which only falls short of the 146 dollars at the peak of the 2008 oil bubble. In an extremely volatile market, the price of oil fluctuated between 100 and 120 dollars until the end of August, but by the end of the year the stabilisation of the situation on the frontlines and the decrease in economic activity caused by interest increases brought it back to the level it had been at the beginning of the year. The average price of 2022 was 99 $/bbl, which was 39% higher than in the previous year.

VKG sells most of the produced oils on the basis of the price of fuel oil with 1% sulphur content. Compared to the Brent crude oil, the 1% fuel oil market is less liquid and the price of fuel oil may move differently from Brent, depending on the ratio between supply and demand. As VKG’s expenses are denominated in euros, the company’s results are also influence by the US dollar rate. Thus, the Group’s results are best characterised by the following fuel oil price curve.

The volume of investments of the VKG consolidation group amounted to 6.5 million euros in 2022, of which 5.5 million euros were VKG Kaevandused’s investments that were mainly aimed at increasing the operating reliability of the company. As assets related to the production of oil products and energy no longer belong to the VKG consolidation group, the investments related to those assets are not reflected in VKG’s reports.

Most of the 2022 investments were financed from the company’s own funds, but leasing financing was also used in procuring more liquid assets. The distribution of VKG’s loan obligations is described in greater detail in Note 9 to the financial statements.