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[Nordic power contracts rise to over two-year high, drought and geopolitical risks combine to create a premium] ⑴ On Tuesday, Nordic baseload power contracts for the first quarter continued their upward trend, rising €0.90 or 1.1% to €80 per megawatt-hour. This followed Monday's record high since December 2023, with the previous year's contract also rising €1 to €51 per megawatt-hour. ⑵ The core variable driving this upward trend is the continued tightening of hydrological conditions. Nordic water reserves have been in negative territory since late December, currently 23.76 billion kilowatt-hours below normal levels. While this is slightly less than Monday's 24.09 billion kilowatt-hour deficit, the pressure on reservoir storage has not substantially eased. Meteorologists predict that dry and warm weather will persist in western regions until the end of this week, making the short-term supply outlook pessimistic. (3) External geopolitical risks simultaneously strengthened bullish sentiment. The US's naval blockade of Iran and the resumption of military strikes raised concerns about the smooth flow of energy through the Strait of Hormuz. Dutch TTF natural gas wholesale prices rose to their highest level since April on Tuesday, indirectly supporting the central electricity price through marginal generation cost transmission. (4) German annual electricity contracts for the following year rose 1.7% to €101.30 per megawatt-hour, while the European carbon allowance benchmark contract rose slightly by 0.5% to €80.5 per ton. The overall energy chain showed a coordinated strengthening trend. Going forward, attention should be paid to the impact of actual rainfall in Northern Europe over the next two weeks on the pace of reservoir replenishment, and whether the situation in the Middle East will further push up natural gas import costs. If these two driving factors continue to resonate, the Nordic first-quarter contract may test the €90 mark.