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    Western Sanctions Show Russian Vulnerability in Global Economy

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    Even countries with limited trade relationships are intertwined in capital markets in today’s world. Could the Russia sanctions change that?The United States, Europe and their allies are not launching missiles or sending troops to push back against Russia’s invasion of Ukraine, so they have weaponized the most powerful nonmilitary tool they have available: the global financial system.Over the past few days, they have frozen hundreds of billions of dollars of Russian assets that are held by their own financial institutions; removed Russian banks from SWIFT, the messaging system that enables international payments; and made many types of foreign investment in the country exceedingly difficult, if not impossible.The impact of this brand of supercharged economic warfare was immediate. By Thursday, the value of the Russian ruble had reached a record low, despite efforts by the Bank of Russia to prop up its value. Trading on the Moscow stock market was suspended for a fourth day, and financial behemoths stumbled. Sberbank, Russia’s largest lender, was forced to close its European subsidiaries after running out of cash. At one point, its shares on the London Stock Exchange dropped to a single penny.There’s more to come. Inflation, which is already high in Russia, is likely to accelerate along with shortages, especially of imported goods like cars, cellphones, laptops and packaged medicines. Companies around the world are pulling investments and operations out of Russia.The sanctions “are severe enough to dismantle Russia’s economy and financial system, something we have never seen in history,” Carl B. Weinberg, chief economist at High Frequency Economics, wrote this week.Russia had been working to “sanction proof” itself in recent years by further paring down its financial ties to the West, including reducing its dependence on the U.S. dollar and other common reserve currencies. It built a fat reservoir of foreign exchange reserves as a bulwark against hard times, trying to protect the value of its currency. It also shifted its holdings sharply away from French, American and German assets and toward Chinese and Japanese ones, as well as toward gold. Its banks, too, tried to “reduce the exposure to risks related to a loss of U.S. dollar access,” the Institute of International Finance said in a February report.But the disaster now rippling through the nation’s banks, markets and streets is evidence that autonomy is a myth in a modern globalized world.The United Nations recognizes roughly 180 currencies, but “the reality is most global payments are still intermediated through a Western currency-dominated financial system,” said Eswar Prasad, a professor of international trade policy at Cornell University.Most of global commerce is carried out in dollars and euros, making it hard for Russia to avoid the currencies. And as much as half of the $643 billion in foreign exchange reserves owned by the Russian central bank is under the digital thumb of central and commercial banks in the United States, Europe and their allies.“They control the wealth of the world,” even the parts that they don’t own, said Michael S. Bernstam, a research fellow at the Hoover Institution at Stanford University.While there has been speculation that Russia could mute the fallout of the sanctions by using its gold reserves, turning to Chinese yuan or transacting in cryptocurrency, so far those alternatives seem unlikely to be enough to forestall financial pain.“When the world’s biggest economies and deepest and most liquid financial markets band together and put this level of restrictions on the largest Russian banks, including the Russian central bank, it is very difficult to find a way to significantly offset large parts of that,” Janet L. Yellen, the Treasury secretary, told reporters on Wednesday. “I believe these will continue to bite.”The sanctions may come with a longer-term cost. The West’s overwhelming control could, in the long run, encourage other nations to create alternative financial systems, perhaps by setting up their own banking networks or even backing away from reliance on the dollar to conduct international transactions.A market in Moscow this week. Inflation, already high, is likely to accelerate from shortages created by sanctions.Sergey Ponomarev for The New York Times“I would liken them to very powerful antibiotics,” said Benn Steil, a senior fellow at the Council on Foreign Relations. “If they’re overprescribed, eventually the bacteria become resistant.”Other countries, like Iran, North Korea and Venezuela, have experienced these sorts of financial penalties before, losing their access to SWIFT or to some of their foreign exchange reserves. But the array of restrictions has never been slapped on a country as large as Russia.During congressional testimony this week, Jerome H. Powell, the Federal Reserve chair, was asked how easily he thought China and Russia could create an alternative service that could undermine the effectiveness of SWIFT sanctions in the future.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Powell Says Rates Are Headed Higher, Even as Ukraine Poses Uncertainty

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    Jerome H. Powell, the Federal Reserve chair, told lawmakers on Wednesday that the central bank is poised to lift interest rates at its meeting this month as it tries to cool down high inflation — saying that while Russia’s invasion of Ukraine is ramping up economic uncertainty, it isn’t yet shaking the Fed off its course.Mr. Powell, testifying before the House Financial Services Committee, said the economic path ahead remained unsettled as Russia invaded Ukraine and the world reacted. He outlined with more clarity than usual how the Fed is thinking about policy in the coming months, saying, “We are going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment.”With inflation running hot, the labor market showing strength and the economy growing rapidly, the Fed’s leader said he thought a quarter-point interest rate increase would be appropriate at the central bank’s meeting, which will conclude on March 16. He expects the Fed to make a “series” of increases this year. And he thinks officials will agree to a plan for shrinking their balance sheet bond holdings in coming months, as they had been planning to do.“The question now really is how the invasion of Ukraine, the ongoing war, the response from nations around the world — including sanctions — may have changed that expectation,” Mr. Powell said. “It’s too soon to say for sure, but for now I would say that we will proceed carefully along the lines of that plan.”Mr. Powell emphasized that flexibility was critical, because it was too soon to know what today’s geopolitical tumult would mean for the American economy.Economists have said the conflict is likely to push up gas and other commodity prices, further elevating inflation — already, oil prices have shot higher. But at the same time, a combination of higher fuel costs and wavering consumer sentiment could be a drag on economic growth. Given the unclear effects on the American economy, Mr. Powell said, the Fed will need to remain “nimble.”The Fed chair and his colleagues must balance the risks that Ukraine poses to both inflation and growth against another pressing reality: Price gains in America had already been coming in high for about a year. Fed policymakers, who are tasked with maintaining stable prices, want to make sure that those quick increases do not become a permanent feature of the economic backdrop.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“The game plan is to prevent recent high inflation outcomes from persisting,” Michael Gapen and his colleagues at Barclays wrote in a research report, summing up the crux of Mr. Powell’s testimony.Prices are increasing at the fastest pace in four decades, picking up by 7.5 percent over the year through January in the closely watched Consumer Price Index and by 6.1 percent in the Fed’s preferred inflation gauge, the Personal Consumption Expenditures index. The central bank aims for 2 percent inflation on average over time. Mr. Powell attributed the stubbornly rapid increases to strong consumer demand, especially for goods, that has “collided” with limited supply.“Admitting that inflation — proclaiming that inflation — is far too high, and that we are committed to using our tools to get it back down, it’s really about very, very high demand,” Mr. Powell said. “It’s a very different kind of inflation story than we’ve had in the past, but it’s one we have to deal with, and we will deal with it.”Mr. Powell said the Fed expected inflation to cool off this year as it raised interest rates, government pandemic relief spending faded and supply constraints cleared up. But officials are also closely monitoring factors that could keep it high.If price gains do not begin to come down in 2022, he said the central bank would be prepared to “move more aggressively” and make a larger-than-usual rate increase. Markets have expected that the Fed could increase rates, which are near zero, by half a percentage points at some meetings.“We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market,” Mr. Powell said.Drivers fueled up last month in Brooklyn. Economists have said the war in Ukraine is likely to push gas and other commodity prices higher.Amir Hamja for The New York TimesHis testimony underscored the tense political and economic moment that confronts the Fed — and policymakers across Washington — as a war rages overseas and inflation dominates headlines and spooks consumers at home.Today’s economy does have many bright spots, which Mr. Powell emphasized: Growth has been stronger than in many other advanced economies, and jobs are plentiful, creating opportunities for workers.“The labor market is extremely tight,” Mr. Powell said. He added that “employers are having difficulties filling job openings, an unprecedented number of workers are quitting to take new jobs and wages are rising at their fastest pace in many years.”Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Ukrainian Invasion Adds to Chaos for Global Supply Chains

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    Russia’s military incursion is severing key supply chains and setting off a scramble among global companies to comply with new sanctions.WASHINGTON — The Russian invasion of Ukraine has rattled global supply chains that are still in disarray from the pandemic, adding to surging costs, prolonged deliveries and other challenges for companies trying to move goods around the world.The clash in Ukraine, a large country at the nexus of Europe and Asia, has caused some flights to be canceled or rerouted, putting pressure on cargo capacity and raising concerns about further supply chain disruptions. It is putting at risk global supplies of products like platinum, aluminum, sunflower oil and steel, and shuttering factories in Europe, Ukraine and Russia. And it has sent energy prices soaring, further raising shipping costs.The conflict is also setting off a scramble among global companies as they cut off trade with Russia to comply with the most far-reaching sanctions imposed on a major economic power since the end of the Cold War.The new challenges follow more than two years of disruptions, delays and higher prices for beleaguered companies that use global supply chains to move products around the world. And while the economic implications of the war and sweeping sanctions on Russia are not yet clear, many industries are bracing for a bad situation to get worse.“Global supply chains are already hurting and stressed because of the pandemic,” said Laura Rabinowitz, a trade lawyer at Greenberg Traurig. She said the effects would vary for specific industries and depend on the length of the invasion, but the impacts would be magnified because of an already-vulnerable supply chain.“There’s still tremendous port congestion in the United States. Freight costs are very high. Factory closures in Asia are still an issue,” she said.Companies with complex global supply chains, like automakers, are already feeling the effects. Volkswagen, which had already announced it was suspending production at its main factory for electric cars, said Tuesday that it would also be forced to shut down production at several other factories, including its main factory in Wolfsburg, Germany, in coming weeks because of parts shortages.Automakers could see shortages of other key materials. Ukraine and Russia are both substantial sources for palladium and platinum, used in catalytic converters, as well as aluminum, steel and chrome.Semiconductor manufacturers are warily eyeing global stocks of neon, xenon and palladium, necessary to manufacture their products. Makers of potato chips and cosmetics could face shortages of sunflower oil, the bulk of which is produced in Russia and Ukraine.And if the conflict is prolonged, it could threaten the summer wheat harvest, which flows into bread, pasta and packaged food for vast numbers of people, especially in Europe, North Africa and the Middle East. Food prices have already skyrocketed because of disruptions in the global supply chain, increasing the risk of social unrest in poorer countries.On Tuesday, the global shipping giant Maersk announced that it would temporarily suspend all shipments to and from Russia by ocean, air and rail, with the exception of food and medicine. Ocean Network Express, Hapag-Lloyd and MSC, the world’s other major ocean carriers, have announced similar suspensions.“The war just makes the worldwide situation for commodities more dire,” said Christopher F. Graham, a partner at White and Williams.Jennifer McKeown, the head of global economics service at Capital Economics, said the global economy appeared relatively insulated from the conflict. But she said shortages of materials like palladium and xenon, used in semiconductor and auto production, could add to current difficulties for those industries. Semiconductor shortages have halted production at car plants and other facilities, fueling price increases and weighing on sales.“That could add to the shortages that we’re already seeing, exacerbate those shortages, and end up causing further damage to global growth,” she said.International companies are also trying to comply with sweeping financial sanctions and export controls imposed by Europe, the United States and a number of other countries that have clamped down on flows of goods and money in and out of Russia.In just a few days, Western governments moved to exclude certain Russian banks from using the SWIFT messaging system, limit the Russian central bank’s ability to prop up the ruble, cut off shipments of high-tech goods and freeze the global assets of Russian oligarchs.The Biden administration said the technology restrictions alone would stop about a fifth of Russian imports. But the impact on trade from the financial curbs is likely to be even larger, cutting off Russia’s imports from and exports to nearly all of its major trading partners, said Eswar Prasad, a professor of trade policy at Cornell University.“Even when trade flows may take place directly between Russia and its trading partners, the reality is that payments often have to go through a Western-dominated financial system, and usually have to go through a Western currency,” he said.In a statement on Saturday, the president of the European Commission, Ursula von der Leyen, said that Europe and its allies were “resolved to continue imposing massive costs on Russia” and that disconnecting Russian banks from SWIFT would also halt Russian trade.“Cutting banks off will stop them from conducting most of their financial transactions worldwide and effectively block Russian exports and imports,” she said.The economic consequences of these moves are not yet entirely clear. Russia accounts for less than 2 percent of global domestic product, so the implications for other countries may be somewhat limited.The departures board displayed flight cancellations at Sheremetyevo Airport in Moscow on Monday.Sergey Ponomarev for The New York TimesBut for the Russian government and the economy, both of which are heavily dependent on trade to generate revenue, the impact could be catastrophic. Capitol Economics has estimated Russian gross domestic product could contract by 5 percent this year, a change that in isolation would knock just 0.2 percentage points off global growth.Caroline Bain, chief commodities economist at Capitol Economics, said financial sanctions were halting the trade of metals and agricultural commodities, likely exacerbating strains in global supply chains.Credit Suisse and Société Generale have suspended financing for commodity trading with Russia, as has the Industrial and Commercial Bank of China, she said.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More

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    How Sanctions on Russia Are Affecting the Global Economy

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    The price of energy has already shot higher, and the conflict imperils supply chains, factors that could exacerbate inflation and suppress growth.In the span of just a few days, the global economic outlook has darkened while troops battled in Ukraine and unexpectedly potent financial sanctions rocked Russia’s economy and threatened to further fuel worldwide inflation.The price of oil, natural gas and other staples spiked on Monday. At the same time, the groaning weight on supply chains, still laboring from the pandemic, rose as the United States, Europe and their allies tightened the screws on Russia’s financial transactions and froze hundreds of billions of dollars of the central bank’s assets that are held abroad.Russia has long been a relatively minor player in the global economy, accounting for just 1.7 percent of the world’s total output despite its enormous energy exports. President Vladimir V. Putin has moved to further insulate it in recent years, building up a storehouse of foreign exchange reserves, reducing national debt and even banning cheese and other food imports from Europe.But while Mr. Putin has ignored a slate of international norms, he cannot ignore a modern and mammoth financial system that is largely controlled by governments and bankers outside his country. He has mobilized tens of thousands of his troops, and, in response, allied governments have mobilized their vast financial power.Now, “it’s a gamble between a financial clock and a military clock, to vaporize the resources to conduct a war,” said Julia Friedlander, director of the economic statecraft initiative at the Atlantic Council.Together, the invasion and the sanctions inject a huge dose of uncertainty and volatility into economic decision-making, heightening the risk to the global outlook.A corn warehouse near Stavropol, Russia. Russia and Ukraine are large exporters of corn.Eduard Korniyenko/ReutersThe sanctions were designed to avoid disrupting essential energy exports, which Europe, in particular, relies on to heat homes, power factories and fill gas tanks. That helped dampen, but did not erase, a surge in energy prices caused by war and anxieties about disruptions in the flow of oil and gas.Worries about shortages also pushed up the price of some grains and metals, which would inflict higher costs on consumers and businesses. Russia and Ukraine are also large exporters of wheat and corn, as well as essential metals, like palladium, aluminum and nickel, that are used in everything from mobile phones to automobiles.Already eye-popping transport costs are also expected to soar.“We are going to see rates skyrocket for ocean and air,” said Glenn Koepke, general manager of network collaboration at FourKites, a supply chain consultancy in Chicago. He warned that ocean rates could double or triple to $30,000 a container from $10,000 a container, and that airfreight costs were expected to jump even higher.Russia closed its airspace to 36 countries, which means shipping planes will have to divert to roundabout routes, leading them to spend more on fuel and possibly encouraging them to reduce the size of their loads.Loading rolls of steel onto a ship at the port of Mykolaiv in Ukraine. One expert predicted that ocean transport costs could triple.Brendan Hoffman for The New York Times“We’re also going to see more product shortages,” Mr. Koepke said. While it’s a slower season now, he said, “companies are ramping up for summer volume, and that’s going to have a major impact on our supply chain.”In a flurry of updates on Monday, several Wall Street analysts and economists acknowledged that they had underestimated the extent of Russia’s invasion of Ukraine and the international response. With events rapidly piling up, assessments of the potential economic fallout ranged from the mild to the severe.Inflation was already a concern, running in the United States at the highest it has been since the 1980s. Now questions about how much more inflation might rise — and how the Federal Reserve and other central banks respond — hovered over every scenario.“The Fed is in a box, inflation is running at 7.5 percent, but they know if they raise interest rates, that will tank markets,” said Desmond Lachman, a senior fellow at the American Enterprise Institute. “The policy choices aren’t good, so I don’t see how this has a happy outcome.”Others were more cautious about the spillover effects given the isolation of Russia’s economy.Adam Posen, president of the Peterson Institute for International Economics, said there were vexing questions, particularly in Europe, about what the conflict would mean for inflation — and whether it posed the prospect of stagflation, in which economic growth slows and prices rise quickly.But overall, he said, “the damage is likely to be small.”That doesn’t mean there won’t be intense pain in spots. Mr. Posen noted that a handful of banks in Europe could suffer from their exposures to the Russian financial system, and that Eastern European companies might lose access to money in the country.Thousands of people fleeing Ukraine are also streaming into neighboring countries like Poland, Moldova and Romania, which could add to their costs.Thousands of Ukrainian refugees, including this family at the Polish border in Medyka, have fled Ukraine for Poland, Romania and Moldova.Maciek Nabrdalik for The New York TimesTurkey’s economy, which is already struggling, is likely to take a hit. Oxford Economics lowered its forecast for Turkey’s annual growth by 0.4 percentage points to 2.1 percent because of rises in energy prices, disruptions to financial markets and declines in tourism.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More

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    Before Ukraine Invasion, Russia and China Cemented Economic Ties

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    Facing a wary United States and worried about depending on imports by sea, China is buying more energy and food from its northern neighbor.BEIJING — As Russia wreaks havoc in Ukraine, Moscow has a powerful economic ally to help it resist Western sanctions: China.Chinese purchases of oil from Russia in December surpassed its purchases from Saudi Arabia. Six days before the military campaign began, Russia announced a yearslong deal to sell 100 million tons of coal to China — a contract worth more than $20 billion. And hours before Russia began bombing Ukraine, China agreed to buy Russian wheat despite concerns about plant diseases.In a throwback to the 1950s, when Mao Zedong worked closely with Joseph Stalin and then Nikita Khrushchev, China is again drawing close to Russia. As the United States and the European Union have become wary of China, Beijing’s leaders have decided that their best geopolitical prospects lie in marrying their vast industrial might with Russia’s formidable natural resources.Recent food and energy deals are just the latest signals of China’s economic alignment with Russia.“What happened up to now is only a beginning for both the Russian expansionism by force and the Chinese economic and financial support to Russia,” Shi Yinhong, a professor of international relations at Renmin University in Beijing, said in a text message. “This does not mean that China directly supports in any degree that expansionism — this only means that Beijing strongly feels the necessity to maintain and boost strategic partnership with Moscow.”The United States and the European Union are hoping that sanctions force Russia to reconsider its policies. But Wang Wenbin, the Chinese foreign ministry’s spokesman, said at a briefing on Friday that China opposed the use of sanctions.“Sanctions are never an effective way to solve the problems,” he said. “I hope relevant parties will still try to solve the problem through dialogue and consultation.”At the same time, Russia’s invasion of Ukraine has imposed an awkward diplomatic quandary on China by violating the principle of national sovereignty that the Chinese leaders regard as sacrosanct. While President Xi Jinping of China has not criticized Russia publicly, he could use his country’s economic relationship with its northern neighbor as leverage to persuade the Russians to resolve the crisis quickly.Mr. Xi and President Vladimir V. Putin of Russia spoke by phone on Friday. An official Chinese statement said afterward that Mr. Xi had expressed support for Russia in negotiating an agreement with Ukraine — a stance that Mr. Putin has also favored, provided that Ukraine accepts his terms.Until now, much of China’s energy and food imports came across seas patrolled by the U.S. or Indian navies. As China’s leaders have focused lately on the possibility of conflict, with military spending last year growing four times as fast as other government spending, they have emphasized greater reliance on Russia for crucial supplies.China and Russia share a nearly 2,700-mile border, and in recent years China has become Russia’s largest source of imports and the biggest destination for its exports.“Given the geopolitical tensions, Russia is a very natural geopolitical partner,” said Andy Mok, a senior research fellow at the Center for China and Globalization in Beijing.Initial Western sanctions on Russia have focused on limiting technology exports and imposing financial penalties. For now, U.S. officials have avoided targeting consumer goods, agricultural products and energy, to try to avoid harming ordinary people and further fueling inflation.China is the world’s dominant manufacturer of electronics, machinery and other manufactured goods, and has been supplying them to Russia in exchange for food and energy.A train carrying coal in Yekaterinburg, Russia, in 2020. China’s imports of Russian coal have more than doubled in the past three years.Maxim Babenko for The New York TimesThe new cornerstone of relations between China and Russia is the Sino-Russian nonaggression pact concluded in Beijing on Feb. 4. Mr. Xi and Mr. Putin reached the deal hours before the opening ceremony of the Beijing Winter Olympics and issued a statement saying the countries’ friendship “has no bounds.”The pact freed Mr. Putin to move troops and military equipment from Russia’s border with China to its border with Ukraine while ushering in closer economic cooperation.“The joint statement is strong and has lasting consequences for the new world order,” said Jean-Pierre Cabestan, a research professor of political science at Hong Kong Baptist University.The Chinese and Russian governments share many values, particularly their antipathy to sanctions the West imposes on human-rights grounds. “The two sides firmly believe that defending democracy and human rights should not be used as a tool to exert pressure on other countries,” their pact on Feb. 4 said.When the Obama administration imposed sanctions on Russia after its invasion of Ukraine’s Crimea region in 2014, China helped Russia evade them.It is not clear if China will help Russia evade sanctions put in place this week. On Tuesday, the Biden administration added to previous measures by announcing sanctions against Russia’s two largest financial institutions and sweeping restrictions on advanced technologies that can be exported to Russia. The technological curbs, when taken in concert with allies, would block roughly a fifth of Russian imports, the administration said.Chinese companies that circumvent those rules could face escalating punishment by the United States, including criminal and civil penalties, said Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics. Those businesses could also be cut off from American technology and the financial system.ZTE and Huawei, two Chinese firms that were barred from receiving American technological exports, attracted the attention of the U.S. government in part for evading sanctions on Iran.“The interesting question is: Is China going to comply with this?” Mr. Chorzempa said. China also has a law designed to penalize companies for following extraterritorial sanctions by countries like the United States, he said, all factors that “could put companies in a real bind.”“If they don’t comply with the U.S., they’re in trouble with the U.S., but if they don’t comply with China, they could also face penalties in China,” he said.Of course, collecting fines from companies that are unwilling to pay and monitoring whether businesses comply with the rules could be difficult, Mr. Chorzempa added. “It’s already proving difficult to monitor the things that are already controlled, and if you expand that list, that’s going to be a real challenge to verify what’s going to Russia,” he said.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More

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    How the U.S. and Europe Are Targeting Putin With Sanctions

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    WASHINGTON — The United States and Europe moved on Friday to personally penalize President Vladimir V. Putin of Russia for his invasion of Ukraine, imposing sanctions aimed at freezing his wealth while continuing to try to cripple his military and economic capabilities through other new restrictions.White House officials said that President Biden intended to impose sanctions and freeze the assets of Mr. Putin, along with Sergey V. Lavrov, his foreign minister. Other Russian national security officials will also be subject to the sanctions, and the United States plans to impose a travel ban to restrict the movement of Russia’s top leaders.The decisions align the United States with its European allies, whose governments made similar moves earlier in the day.“Treasury is continuing to inflict costs on the Russian Federation and President Putin for their brutal and unprovoked assault on the people of Ukraine,” Treasury Secretary Janet L. Yellen said in a statement announcing the sanctions.European leaders met into the early hours of Friday to hammer out an agreement over a new set of sanctions aimed more broadly at the Russian economy and at Mr. Putin himself, as his troops advanced in their invasion of Ukraine.One of the decisions was to freeze the assets of Mr. Putin and Mr. Lavrov, but not to impose a travel ban on them, according to three European Union diplomats and officials familiar with the draft E.U. sanctions.The new American and European sanctions are a provocative step given how rarely governments, including the United States, take aim at foreign leaders. Yet they may prove largely symbolic given that the status of Mr. Putin’s financial holdings has been cloaked in mystery and his money is not believed to be held in the United States.Jen Psaki, the White House press secretary, said that imposing sanctions directly on Mr. Putin “sends a clear message about the strength of the opposition to the actions by President Putin and the direction in his leadership of the Russian military.”Speaking to reporters on Friday, Ms. Psaki said the decision had been made in the past 24 hours after consultation with European leaders. She would not comment on what impact she believed the sanctions would have on Mr. Putin. But she underscored that they were a demonstration of trans-Atlantic unity in opposition to his actions.While the United States has imposed sanctions on and frozen the assets of some Russian oligarchs, targeting Mr. Putin directly was a significant escalation. It puts him in similar company with Presidents Bashar al-Assad of Syria and Aleksandr G. Lukashenko of Belarus, both of whom have been subject to personal sanctions by the U.S. government.Adam M. Smith, a former Treasury Department official who is now a partner at the law firm Gibson, Dunn & Crutcher, said placing sanctions on Mr. Putin sent a significant message given that the United States had never taken a similar action against such a powerful leader. However, he said that it was unlikely that the sanctions would affect Mr. Putin’s wealth or change his calculus in Ukraine.“I don’t think Putin is really going to lose much sleep on being sanctioned,” Mr. Smith said.The personal sanctions add to the growing list of restrictions that the Biden administration, in coordination with Europe, has rolled out. The United States has placed sanctions on major Russian financial institutions and the nation’s sovereign debt, and on Thursday, it took steps to prevent Russia from gaining access to American technology critical for its military, aerospace industry and overall economy.But the attempt to punish Mr. Putin has exposed the degree to which many European countries rely on Russia for energy, grains and other products. A package of penalties, which European leaders described as unprecedented in terms of its size and reach, was difficult to forge consensus on, even as Russian forces approached Kyiv, Ukraine’s capital.Europe’s economies are deeply intertwined with Russia’s economy, and the more the European Union leans into Russian sanctions, the more its own members will also feel the pain. The toughest of sanctions could even derail the bloc’s tentative recovery from the recession induced by the coronavirus pandemic.That is why negotiators left off the table particularly difficult elements, such as imposing sanctions on oil and gas companies or banning Russia from SWIFT, the platform used to carry out global financial transactions on commodities including wheat. E.U. officials said one key reason for their reluctance to cut off Russia’s access to the platform was that Europe uses it to pay for the gas it buys from Russia.Experts said that the approved sanctions were tough and that the speed at which the European Union was moving was impressive. But some were critical of the leaders for not going further.President Volodymyr Zelensky of Ukraine was scathing in a statement posted on Facebook on Friday.“This morning, we are defending our state alone,” he said. “Like yesterday, the world’s most powerful forces are watching from afar. Did yesterday’s sanctions convince Russia? We hear in our sky and see on our earth this was not enough.”Understand Russia’s Attack on UkraineCard 1 of 7What is at the root of this invasion? More

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    Ukraine War Strains North Africa Economies

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    Egypt imports most of its wheat from Russia and Ukraine, and is looking for alternative suppliers. And Tunisia was struggling to pay for grain imports even before the conflict.CAIRO — On the way to the bakery, Mona Mohammed realized Russia’s war on Ukraine might have something to do with her.Ms. Mohammed, 43, said she rarely pays attention to the news, but as she walked through her working-class Cairo neighborhood of Sayyida Zeinab on Friday morning, she overheard a few people fretting about the fact that Egypt imports most of its wheat from Russia and Ukraine.War meant less wheat; war meant more expensive wheat. War meant that Egyptians whose budgets were already crimped from months of rising prices might soon have to pay more for the round loaves of aish baladi, or country bread, that contribute more calories and protein to the Egyptian diet than anything else.“How much more expensive can things get?” Ms. Mohammed said as she waited to collect her government-subsidized loaves from the bakeryRussia’s invasion of Ukraine this week threatens to further strain economies across the Middle East already burdened by the pandemic, drought and conflict. As usual, the poorest have had it the worst, reckoning with inflated food costs and scarcer jobs — a state of affairs that recalled the lead-up to 2011, when soaring bread prices helped propel anti-government protesters into the streets in what came to be known as the Arab Spring.In a region where bread keeps hundreds of millions of people from hunger, anxiety at the bakeries spells trouble.In Egypt, the world’s top importer of wheat, the government was moving in the wake of the Russian invasion to find alternative grain suppliers. In Morocco, where the worst drought in three decades was pushing up food prices, the Ukraine crisis was set to exacerbate the inflation that has caused protests to break out. Tunisia was already struggling to pay for grain shipments before the conflict broke out; the war seemed likely to complicate the cash-strapped government’s efforts to avert a looming economic collapse.Harvesting wheat in Luxor, Egypt.Khaled Elfiqi/EPA, via ShutterstockBetween April 2020 and December 2021, the price of wheat increased 80 percent, according to data from the International Monetary Fund. North Africa and the Middle East, the largest buyers of Russian and Ukrainian wheat, were experiencing their worst droughts in over 20 years, said Sara Menker, the chief executive of Gro Intelligence, an artificial intelligence platform that analyzes global climate and crops.“This has the potential to upend global trade flows, further fuel inflation, and create even more geopolitical tensions around the world,” she said.After years of mismanaging their water supplies and agricultural industries, countries like Egypt, Algeria, Tunisia and Morocco cannot afford to feed their own populations without importing food — and heavily subsidizing it. In recent years, the number of undernourished people in the Arab world has increased because of the overreliance on food imports, as well as a scarcity of arable land and rapid population growth.Beyond its effect on the price of bread, the uncertainty and turmoil brought on by the war will push up interest rates and lower access to credit, which, in turn, would quickly force governments to spend more to service their high debts and squeeze essential spending on health care, education, wages and public investments, said Ishac Diwan, an economist specializing in the Arab world at Paris Sciences et Lettres university.He predicted a rise in economic pressure on Egypt, Tunisia, Jordan and Morocco, warning that Egypt and Tunisia in particular could see peril to their banking sectors, which hold a large share of the public debt.Egypt is also heavily dependent on tourism from Russia, which has helped its tourism industry recover from the Covid-19 pandemic, giving the country extra cause for alarm.Global inflation and supply chain issues stemming from the pandemic have also raised the price of pasta in Egypt by a third over the last month. Cooking oil was up. Meat was up. Nearly everything was up.But most important, bread, the cost of which had already risen by about 50 percent at non-subsidized bakeries over the last four months; a five-pound note (about 30 cents) now buys only about seven loaves of bread, down from 10, bakery employees said.Egyptians, about a third of whom live on less than $1.50 a day, rely on bread for a third of their calories and 45 percent of their protein, according to the Food and Agriculture Organization, a United Nations agency.Mona Fathy, 36, serving food to her children in her home, in the impoverished neighborhood of El-Ayyat in Giza, Egypt.Mohamed Abd El Ghany/ReutersGovernment officials said on Thursday that Egypt had enough grain reserves and domestically produced wheat to last the country until November. But because of rising import prices President Abdel Fatteh el-Sisi last year announced that Egypt would raise subsidized bread prices this year, risking public fury.“Of course I’m worried,” said Karim Khalaf, 23, who was collecting and stacking baladi loaves as they slipped out of the oven, steaming slightly, in a bakery in Sayyida Zeinab on Friday morning. “My salary hasn’t changed, but now I’m spending more than I’m making.”Morocco, where the all-important agriculture sector employs about 45 percent of the work force, is facing an economic crisis precipitated by global inflation, a surge of food and oil prices, and the worst drought in three decades.Anti-government protests that erupted on Sunday suggested that many Moroccans have lost patience with their six-month-old government as they struggle to make ends meet two years into a pandemic that annihilated the once-lucrative tourism industry.Understand Russia’s Attack on UkraineCard 1 of 7What is at the root of this invasion? More

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    A Key Inflation Gauge Is Still Rising, and War Could Make It Worse

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    A measure of inflation closely watched by the Federal Reserve is expected to show that prices continued to rise in January, accelerating on a monthly basis and increasing from a year earlier at the fastest pace since 1982.Economists expect that the Personal Consumption Expenditures index, which the Fed targets as it aims for 2 percent annual inflation on average over time, rose 6 percent from the previous January. Prices probably climbed 0.6 percent from December, up from 0.4 percent the prior month, based on the central estimate in a Bloomberg survey.The Commerce Department will release the data at 8:30 a.m. on Friday.High inflation remains stubborn at a tense moment. With consumers already struggling with rising costs, Russia’s invasion of Ukraine this week promises to push inflation even higher as prices for oil and other commodities increase.The Fed has been preparing to steadily pull back its pandemic-era economic support in an effort to cool off consumer demand and tame prices. The White House is monitoring inflation closely as rising prices for food, rent and gas shake consumer confidence and dent President Biden’s approval ratings ahead of midterm elections in November.The fresh inflation reading won’t surprise economists or policymakers — the Personal Consumption Expenditures number is fairly predictable because it is based on Consumer Price Index figures that come out more quickly, along with other already available data. But it will reaffirm that price increases, which were expected to prove temporary as the pandemic economy reopened, have instead lasted almost an entire year and seeped into areas not affected by the coronavirus.Price increases have hit a wide array of products and services, including used cars, beef, chicken, restaurant meals and home furnishings, and several trends risk keeping inflation elevated. Notably, wages are rising rapidly, and employers are finding that they can pass their climbing labor costs along to shoppers.Grocery shopping in Queens this month. Price increases are sweeping a growing array of products and services, and several trends could keep them elevated.Amir Hamja for The New York TimesEconomists are also warily eyeing the conflict in Ukraine, which has already caused oil and gas prices to rise and is likely to push commodity costs higher still.Researchers at Goldman Sachs estimate that an increase of $10 per barrel of oil would increase headline inflation in the United States by a fifth of a percentage point while lowering economic output by just under a tenth of a percentage point.Brent crude oil, the global benchmark, rose as much as 6 percent to more than $100 per barrel after Russia invaded Ukraine and could climb further as Russia reacts to sanctions from the United States and Europe. Russia is a major exporter of energy to Europe.“Potentially, Russia could retaliate by limiting oil exports,” Patrick De Haan, head of petroleum analysis at GasBuddy, said on Thursday. Prices at the pump are likely to reflect repercussions from the conflict almost immediately, he said.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More