A drought of unprecedented severity is gripping Europe, threatening economic growth across multiple countries and prompting extraordinary countermeasures—including the detonation of riverbeds to restore water flow.

Romania recently shut down its sole operational nuclear reactor, which relies on the Danube for cooling, marking the first such shutdown on record. The Romanian government deployed naval forces to conduct underwater explosions aimed at improving water flow. Images published Monday showed the Romanian navy carrying out controlled blasts on rocks near the village of Izvoarele, part of an effort to channel more water toward the cooling systems of the Cernavoda Nuclear Power Plant. The intervention highlights the growing pressure on inland waterways that serve as lifelines for power generation across Central and Eastern Europe.

Low water levels on the Danube have also endangered Hungary's Paks nuclear plant, which accounts for approximately 40% of the country's electricity supply. Serbia, meanwhile, has been forced to curtail hydropower generation. The power-generation strains come at a time when European countries are already contending with elevated energy prices and efforts to reduce dependence on Russian gas, leaving utilities with thinner margins to absorb additional supply shocks.

Rhine Water Levels Hit Historic Lows

In Germany, water levels on the Rhine River—a vital artery in Europe's economic heartland—have dropped to their lowest point in nearly 150 years, threatening the German economy and further straining supply chains. The Rhine typically moves vast quantities of coal, chemicals, grain, and fuel between the Port of Rotterdam and industrial centers in the German and Swiss interior, making it indispensable to just-in-time manufacturing logistics.

The water level at Kaub, a critical chokepoint for vessels transiting to southern Germany and Switzerland, fell to 24 centimeters on Monday and Tuesday. According to official data compiled by ETH Zurich, this represents the lowest level since records began in 1880, with forecasts indicating even lower levels by week's end. The last comparable disruption occurred during the 2018 drought, when similarly low levels forced manufacturers to ration or reroute shipments, offering a template for the costs now unfolding.

That figure is far below the 78-centimeter threshold deemed critical for Rhine navigation at the Kaub gauge. While transport remains possible below this level, cargo barges must carry lighter loads, and freight costs along with low-water surcharges increase sharply.

"Major rivers like the Rhine and Danube are critical trade corridors and sources of water for industry and energy generation, so when water levels fall, the effects extend far beyond the waterways themselves," Liz Saccoccia, water security lead at the World Resources Institute, told CNBC by email.

"We're already seeing that happen. Nuclear plants in Hungary, Romania and France, along with hydropower facilities in Serbia, have already had to reduce electricity generation because there isn't enough water for cooling or driving turbines, increasing the risk of blackouts and costly electricity imports," Saccoccia said.

"Along the Danube, low water levels have prevented farmers from shipping their crops and stopped cruise ships from reaching ports such as Budapest. These are early examples of how increasingly unreliable water supplies can ripple through the economy, affecting trade, energy security, supply chains and local businesses," she added.

Water Scarcity and Freight Implications

The crisis underscores the broader environmental challenge of water scarcity. The problem is particularly acute across southern Europe, where approximately 30% of the population lives in areas experiencing permanent water stress—a condition in which demand exceeds available supply. Italy's Po River, the country's longest waterway and a critical irrigation source for its agricultural north, has also sunk to historic lows during the same period, disrupting rice and tomato production.

In economic terms, the impact of low Rhine water levels could reduce German gross domestic product (GDP) by up to 0.2% in the third quarter, according to Stefan Kooths, professor of economics at the Kiel Institute for the World Economy (IfW).

"Since water levels are unlikely to rise sharply back above the critical threshold in early August, transport capacity is likely to remain affected by the low water levels for some time in the coming month as well," Kooths told CNBC by email.

"The loss in value added can be roughly estimated at 1 to 2 billion euros ($1.15 billion to $2.3 billion) in the third quarter," he added.

Climate Change and Europe's Recurring Drought Challenge

Felix Schmidt, senior economist at the private German bank Berenberg, said companies in Europe's traditional growth engine were likely not caught off guard by the Rhine's low water levels, as climate change has made this a recurring challenge.

Businesses have adapted by either building up inventories or diverting some goods to rail or road transport. Schmidt acknowledged, however, that freight rates were currently going "through the roof," which is exacerbating inflationary pressures.

"Given that Germany is growing very little, obviously, if we grow 0.1 instead of 0.2 then this means we lose half of the growth, if you want to frame it like that," Schmidt told CNBC in a phone interview.

The German economy expanded by 0.2% in the second quarter compared to the previous three-month period, following an upwardly revised 0.4% quarter-on-quarter increase in the first quarter.

Schmidt described drying rivers as just one manifestation of Germany's broader economic struggle amid an intensifying climate crisis.

"Water levels are obviously one thing but we had this heat wave in Germany a couple of weeks back, impacting big parts of northern Europe, which brings down productivity. You have infrastructure which gets destroyed by the heat. You have energy supply, which is affected, like the nuclear plants being shut down in Hungary, France and Switzerland," Schmidt said.

"You also have the catastrophic development like the fires sweeping now in southern Europe … So, it's affecting the economy in many, many ways," he added.

Source: CNBC, via Hellenic Shipping News