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    Why Are Oil Prices Falling While War Rages in the Middle East?

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    Energy markets have shrugged off the fighting between Israel and Hamas so far, focusing instead on forecasts of subdued demand.Intense fighting is underway in a region that holds much of the world’s petroleum resources. Yet, after a few days of anxiety following the bloody Oct. 7 raids by Hamas militants in Israel, energy markets have been slumping. Brent crude, the international oil benchmark, is selling for about $80 a barrel, cheaper than when the fighting started.Why aren’t prices higher? A main reason, analysts say, is that the fighting, no matter how vicious, has produced little disruption to petroleum supplies, leading traders to conclude that there is no immediate threat.“While traders realize there is an increased risk, that hasn’t led to a lot of precautionary buying,” said Richard Bronze, head of geopolitics at Energy Aspects, a London-based market research firm.With respect to the Middle East, the markets are “effectively dismissing that anything could go wrong,” said Raad Alkadiri, managing director for energy and climate at Eurasia Group, a political risk firm.Mr. Alkadiri said that traders are unlikely to bid up prices unless they see “actual barrels removed” from the market.Waning Demand in FocusThe market appears to have blocked the war out, and has returned to a mood of pessimism about future demand for petroleum, dominated by economic concerns about China, the largest oil importer, and other large consumers. Saudi Arabia and other producers have been trying to support prices by reducing their oil output.Forecasters are warning that 2024 could be a difficult year in the oil markets. The U.S. Energy Information Administration predicted this week that gasoline consumption in the United States would decline next year because of more efficient vehicle engines, growing numbers of electric cars, and reduced commuting as more people work hybrid schedules.The bearish sentiment drove down prices sharply before the Israel-Hamas conflict and it appears to be weighing on the market again, despite the risks of a broader war.Robust oil production in the United States has also reassured markets, with supplies from the world’s largest producer recently setting a monthly record, at just over 13 million barrels a day. “Strong oil market fundamentals are prevailing over any fears at the moment, “ said Jim Burkhard, vice president and head of research for oil markets, energy and mobility at S&P Global Commodity Insights.Haves and Have-NotsAs the fighting continues, traders have figured out that when it comes to oil there are haves and have-nots in the Middle East. Gaza produces no oil and Israel little. For there to be a material disruption in supply, the war’s effects would need to spread to the gigantic oil fields of Saudi Arabia, Iraq or Iran.Early in the conflict, Iran’s foreign minister called for an oil embargo against Israel, stirring memories of the oil embargo of 50 years ago. But times have changed: Given concerns about the role that fossil fuels play in climate change and their dependence on oil for revenues, any such move would risk backfiring on countries that imposed such a ban. Iran would risk alienating China, the Islamic Republic’s key customer.“The risk to supply is very unlikely to come from an independent decision to curtail oil sales by Iran or OPEC,” Eurasia Group said in a recent note. “Any such move would inflict as much — if not more — damage on producers as on consumers.”The Remaining RisksA disruption is not inconceivable. Four years ago, a missile attack on a key Saudi facility — for which American officials blamed Iran — temporarily knocked out about half of the kingdom’s oil production.In an extreme case, Iran, the key backer of Hamas, could try to block the Strait of Hormuz, through which huge volumes of oil flow to the rest of the world. “I still think that there is considerable risk that this spreads,” said Helima Croft, head of commodities at RBC Capital Markets, an investment bank.Ms. Croft said seeming complacency about the war’s impact could stem in part from traders’ having lost money when prices surged above $120 a barrel after Russia’s invasion of Ukraine, but then quickly fell.“The market just has no attention span for these kinds of issues anymore,” she said.Ms. Croft, a former analyst at the Central Intelligence Agency, said the apparent success of the early days the 2003 invasion of Iraq by U.S. forces eventually led to a conflict that dragged on for years. “We could still be caught by a nasty surprise in the Middle East,” she said.The Biden administration is trying to prevent a widening of the war. Regional oil powers, including Iran, would also prefer to keep tanker traffic moving through the Persian Gulf. Any halts would crimp their own export earnings, while price spikes would risk hurting and alienating their most valued customers.“It’s likely the conflict remains contained and doesn’t spill over into the big oil producers in the region or the key shipping lanes,” said Mr. Bronze of Energy Aspects. “The risks are more from miscalculation and misjudgment,” he added. More

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    U.S. Tightens China’s Access to A.I. Chips

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    The further limits on shipments could cripple Beijing’s A.I. ambitions and dampen revenues for U.S. chip makers, analysts said.The Biden administration on Tuesday announced additional limits on the kinds of advanced semiconductors that American firms can sell to China, shoring up restrictions issued last October to limit China’s progress on artificial intelligence.The rules appear likely to bring to a halt most shipments of advanced semiconductors from the United States to Chinese data centers, which use them to produce models capable of artificial intelligence. More U.S. companies seeking to sell China advanced chips, or the machinery used to make them, will be required to notify the government of their plans, or obtain a special license.To prevent the risk that advanced U.S. chips travel to China through third countries, the United States will also require chip makers to obtain licenses to ship to dozens of other countries that are subject to U.S. arms embargoes.The Biden administration argues that China’s access to such advanced technology is dangerous because it could aid the country’s military in tasks like guiding hypersonic missiles, setting up advanced surveillance systems or cracking top-secret U.S. codes.But artificial intelligence also has commercial applications, and the tougher restrictions may affect Chinese companies that have been trying to develop A.I. chatbots like ByteDance, the parent company of TikTok, or the internet giant Baidu, industry analysts said. In the longer run, the limits could also weaken China’s economy, given that A.I. is transforming industries ranging from retail to health care.The limits also appear likely to cut into the money that U.S. chip makers such as Nvidia, AMD and Intel earn from selling advanced chips to China. Some chip makers earn as much as a third of their revenue from Chinese buyers and spent recent months lobbying against tighter restrictions.U.S. officials said the rules would exempt chips that were purely for use in commercial applications, like smartphones, electric vehicles and gaming systems. Most of the rules will take effect in 30 days, though some will become effective sooner.In a statement, the Semiconductor Industry Association, which represents major chip makers, said it was evaluating the impact of the updated rules.“We recognize the need to protect national security and believe maintaining a healthy U.S. semiconductor industry is an essential component to achieving that goal,” the group said. “Overly broad, unilateral controls risk harming the U.S. semiconductor ecosystem without advancing national security as they encourage overseas customers to look elsewhere.” In a call with reporters on Monday, a senior administration official said that the United States had seen people try to work around the earlier rules, and that recent breakthroughs in generative A.I. had given regulators more insight into how the so-called large language models behind it were being developed and used.Gina M. Raimondo, the secretary of commerce, said the changes had been made “to ensure that these rules are as effective as possible.”Referring to the People’s Republic of China, she said, “The goal is the same goal that it’s always been, which is to limit P.R.C. access to advanced semiconductors that could fuel breakthroughs in artificial intelligence and sophisticated computers that are critical to P.R.C. military applications.”She added, “Controlling technology is more important than ever as it relates to national security.”The tougher rules could anger Chinese officials when the Biden administration is trying to improve relations and prepare for a potential meeting between President Biden and China’s top leader, Xi Jinping, in California next month.The Biden administration has been trying to counter China’s growing mastery of many cutting-edge technologies by pumping money into new chip factories in the United States. It has simultaneously been trying to set tough but narrow restrictions on exports of technology to China that could have military uses, while allowing other trade to flow freely. U.S. officials describe the strategy as protecting American technology with “a small yard and high fence.”But determining which technologies really pose a threat to national security has been a contentious task. Major semiconductor companies like Intel, Qualcomm and Nvidia have argued that overly restrictive trade bans can sap them of the revenue they need to invest in new plants and research facilities in the United States.Some critics say the limits could also fuel China’s efforts to develop alternative technologies, ultimately weakening U.S. influence globally.The changes announced Tuesday appear to have particularly significant implications for Nvidia, the biggest beneficiary of the artificial intelligence boom.In response to the Biden administration’s first major restrictions on artificial intelligence chips a year ago, Nvidia designed new chips, the A800 and H800, for the Chinese market that worked at slower speeds but could still be used by Chinese firms to train A.I. models. A senior administration official said the new rules would restrict those sales.In addition to those expanded restrictions, the United States will create a “gray list” that requires makers of certain less advanced chips to notify the government if they are selling them to China, Iran or other countries subject to a U.S. arms embargo.In a note to clients last week, Julian Evans-Pritchard, the head of China economics at the research firm Capital Economics, said the effects of the controls would become more apparent as non-Chinese companies rolled out more advanced versions of their current products and the amount of computing power needed to train A.I. models rose as their data sets grew larger.“The upshot is that China’s ability to reach the technological frontier in the development of large-scale A.I. models will be hampered by U.S. export controls,” Mr. Evans-Pritchard wrote. That could have broader implications for the Chinese economy, he added, since “we think A.I. has the potential to be a game changer for productivity growth over the next couple decades.” More

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    Yellen Says U.S. Is Considering New Sanctions on Iran and Hamas

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    Treasury Secretary Janet L. Yellen said on Wednesday that the Israel-Gaza war was a potential concern for the global economy and signaled that additional U.S. sanctions could be coming in response to the attack on Israel by Hamas.Questions about the economic impact of the war were growing as Ms. Yellen offered a forceful defense of Israel and pushed back on the notion that U.S. sanctions against Iran — a key backer of Hamas — have become too lenient. Ms. Yellen said the Treasury Department continued to review its sanctions on Iran, Hamas and Hezbollah, the Lebanese militant group that is also a longtime adversary of Israel.“We have not in any way relaxed our sanctions on Iranian oil,” Ms. Yellen said at a news conference on the sidelines of the annual meetings of the International Monetary Fund and the World Bank in Marrakesh, Morocco. “We have sanctions on Hamas, on Hezbollah, and this is something that we have been constantly looking at and using information as it becomes available to tighten sanctions.”She added: “We will continue to do that.”The Treasury secretary also did not rule out reversing a decision made last month — to unfreeze $6 billion of Iranian funds in exchange for the release of American hostages — if it is determined that Iran was involved in the attack by Hamas.At the time of the exchange, the United States informed Iran that it had transferred about $6 billion in Iranian oil revenue from South Korea to a Qatari bank account. The money is supposed to be used only for food, medicine and other humanitarian goods.“These are funds that are sitting in Qatar that were made available purely for humanitarian purposes, and the funds have not been touched,” Ms. Yellen said, adding: “I wouldn’t take anything off the table in terms of future possible actions.”The crisis in Israel poses a new challenge for the world economy and the Biden administration, which has spent the last year working to combat inflation in the United States and to corral energy prices that have become volatile because of Russia’s war in Ukraine. Another war in the Middle East complicates those efforts by threatening to constrain oil supplies and send prices higher.Ms. Yellen said geopolitical “shocks” continued to pose risks to the world economic outlook.“Of course, the situation in Israel poses additional concerns,” she said.Economic officials across the Biden administration are closely tracking developments in global oil markets this week. Global oil prices jumped on Monday after the terrorist attacks in Israel but were falling slightly on Wednesday. Administration officials are concerned that a sustained increase in the cost of crude could hurt economic growth and dent Mr. Biden’s approval rating, by pushing up the price of gasoline for American drivers.Ms. Yellen said she continued to believe that the U.S. economy could achieve a so-called soft landing — where inflation eases without a recession — but was closely watching for any economic fallout from the new conflict in the Middle East.“While we’re monitoring potential economic impacts from the crisis, I’m not really thinking of that as a major driver of the global economic outlook,” Ms. Yellen said. “We will see what impact it has. Thus far, I don’t think we’ve seen anything suggesting it will be very significant.”International policymakers gathered in Morocco for a week of meetings, as the global economic recovery is losing momentum. The prospect of a new regional conflict gave other policymakers more reason to feel anxious about a sluggish world economy that has been battered by war, a pandemic and inflation in recent years. Central banks around the globe have been raising interest rates to tame rapid inflation, and investors had begun to hope that a recent slowdown in price gains could signal an end to those rate increases.“I think central bank governors are concerned about what might happen to energy prices if the Israel-Gaza conflict were to turn into a bigger regional conflict and have implications for supply of oil on markets,” Gita Gopinath, the first deputy managing director of the I.M.F., said in an interview on Wednesday.Ms. Gopinath added that higher oil prices could elevate prices more broadly, complicating interest rate decisions for central bankers. She suggested that it was too soon to say how the economic impact of the conflict in the Middle East might compare with the effects of the war in Ukraine, but that overlapping crises were a headwind.“The geopolitical risks are certainly piling up in Russia’s invasion of Ukraine and we’re seeing now in Israel and Gaza,” she said.That sentiment was echoed on Wednesday by Ajay Banga, the World Bank president, who said at a news conference that he now expected interest rates to be “higher for longer” despite signs that inflation was cooling.“I believe that wars are completely and extremely challenging for central banks who are trying to find their way out of a very difficult situation,” Mr. Banga said.It is not yet clear what steps the Biden administration would take to contain oil prices if the Israel-Gaza war intensifies or how that might affect its efforts to curb Russia’s oil revenues.Ms. Yellen suggested on Wednesday that the “price cap” policy that the Group of 7 devised last year, which forbids Russia to sell oil over $60 a barrel using Western banking and insurance services, had been successful.“Global energy prices have been largely unchanged while Russia has had to either sell oil at a significant discount or spend huge amounts on its alternative ecosystem,” she said.Jim Tankersley More

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    Russia’s Economy Is Increasingly Structured Around Its War in Ukraine

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    The nation’s finances have proven resilient, despite punishing sanctions, giving it leeway to pump money into its military machine.“Everything needed for the front,” Russia’s finance minister declared, echoing a Soviet slogan from World War II as he talked about the government’s latest spending plans.The government still calls its invasion of Ukraine a “special military operation,” but the new budget figures make clear that the economy is increasingly being restructured around war.Nearly a third of the country’s spending next year — roughly $109 billion — will be devoted to “national defense,” the government announced late last month, redirecting money that might otherwise have flowed to health care, education, roads and other sectors. More tellingly, 6 percent of the nation’s total output is being funneled toward Russia’s war machine, more than double what it was before the invasion.Since Russia sent soldiers across the border in February 2022, its economy has had to adapt to dramatic changes with astonishing speed. The European Union, its biggest trading partner, quickly broke economic relations, upending well-established supply chains and reliable sources of income from abroad. The United States used its financial might to freeze hundreds of billions of dollars in Russian assets and cut the country off from the global financial system.Nineteen months later, the economic picture is decidedly mixed. The Russian economy has proved to be much more resilient than many Western governments assumed after imposing a punishing string of sanctions.Moscow has found other buyers for its oil. It has pumped money into the economy at a rapid pace to finance its military machine, putting almost every available worker into a job and raising the size of weekly paychecks. Total output, which the Russian Central Bank estimates may rise as much as 2.5 percent this year, could outpace the European Union and possibly even the United States.Yet that is only part of the story. As Laura Solanko, a senior adviser at the Bank of Finland Institute for Economies in Transition, said: “When a country is at war, gross domestic product is a fairly poor measure of welfare.” Producing bullets adds to a country’s growth rate without necessarily improving the quality of life.The insistent demand for foreign currency — to pay for imported goods or provide a safe investment — has also caused the value of the ruble to sink at a precipitous pace. Last week, it fell to a symbolic break point of 100 to the dollar, further fueling inflation and raising anxiety levels among consumers.Shoppers buying meat at the central market in Rostov-on-Don, Russia, in 2021. Inflation in Russia has driven up the price of meat and other products since the start of the war in Ukraine.Sergey Ponomarev for The New York TimesThe spike in government spending and borrowing has seriously stressed an already overheated economy. The central bank rapidly raised interest rates to 13 percent over the summer, as annual inflation continued to climb. Higher rates, which make it more expensive for businesses to expand and consumers to buy on credit, is likely to slow growth.Consumers are also feeling the squeeze for daily purchases. “Dairy products, especially butter, meat and even bread have gone up in price,” said Lidia Adreevna as she shopped and examined prices at an Auchan supermarket in Moscow. She blamed the central bank.“Life changes,” she offered, “nothing stays forever, not love, or happiness.”Other pensioners at the store also spoke about increases in meat and poultry prices, something almost half of Russians have noticed in the past month, according to survey data from the Moscow-based Public Opinion Foundation published Friday. Respondents also noted increases in the price of medicine and construction materials.Moscow imposed a temporary ban on diesel and gasoline exports last month in an effort to ease shortages and slow rising energy prices, but the restrictions further reduced the amount of foreign currency coming into the country.The exodus of funds is so worrying that the government has warned of reinstating controls on money leaving the country.With a presidential election scheduled in March, President Vladimir V. Putin acknowledged last month that accelerating inflation fueled by a weakened ruble was a major cause of concern. Getting a handle on price increases may discourage the government from embarking on its usual pre-election social spending.Lower standards of living can be “uncomfortable even for an authoritarian government,” said Charles Lichfield, deputy director of the Atlantic Council’s Geoeconomics Center.Since Russia imports a wide range of goods — from telephones and washing machines to cars, medicine and coffee — he said a devalued ruble makes “it more difficult for consumers to buy what they’re used to buying.”A Karachi Port Trust security guard keeping watch over the Clyde Noble, a Russian crude oil tanker berthed at the Karachi Port in Pakistan in June. Pakistan received discounted Russian crude oil as part of a new deal between Islamabad and Moscow.Rehan Khan/EPA, via ShutterstockThe United States, the European Union and countries allied with Ukraine have doggedly tried to cripple Russia with sweeping sanctions.The impact was swift and sharp in the spring of 2022. The ruble tumbled, the central bank increased rates to 20 percent to attract investors, and the government imposed strict controls on capital to keep money inside the country.But the ruble has since bounced back and interest rates come down. Russia found eager buyers elsewhere for its oil, which was selling at vastly discounted prices; liquefied natural gas; and other raw materials. More recently, Russia has become adept at evading the $60 per barrel price cap on oil imposed by the Group of 7 nations as global oil prices have once again started to rise.China is among the nations that have stepped up to buy energy and sell goods to Russia that they previously might have exchanged with European nations. Trade with China rose at an annual rate of 32 percent in the first eight months of this year. Trade with India tripled in the first half of the year, and exports from Turkey rose nearly 89 percent over the same period.Meanwhile, the war is gobbling up other parts of Russia’s budget aside from direct military spending. An additional 9.2 percent of the budget is slated for “national security,” which includes law enforcement. There is money for injured soldiers and for families of those killed in battle, and for “integrating new regions,” a reference to occupied territory in Ukraine.Sergei Guriev, a Russian economist who fled the country in 2013 and is now provost at Sciences Po in Paris, said accurately assessing the Russian economy is difficult. The existing economic models were designed before the war and based on different assumptions, and the published budget figures are incomplete.What that means for Russian households on a daily basis is harder to discern.“Overall, it’s very hard to compare quality of life before and after the war,” Mr. Guriev said. “It’s hard to know what Russians think. People are afraid.”Valerie Hopkins More

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    The Russia-Ukraine War Changed This Finland Company Forever

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    Even with sheets of rain falling, the sprawling construction site was buzzing. Yellow and orange excavators slowly danced around a maze of muddy pits, swinging giant fistfuls of dirt as a chorus line of trucks traipsed across the landscape.This 50-acre plot in Oradea, Romania, close to the border with Hungary, beat out scores of other sites in Europe to become the home of Nokian Tyres’ new 650 million-euro, or $706 million, factory. Like an industrial-minded Goldilocks, the Finnish tire company had searched for the just-right combination of real estate, transport links, labor supply and pro-business environment.Yet the make-or-break feature that every host country had to have would not have even appeared on the radar a few years ago: membership in both the European Union and the North Atlantic Treaty Organization.Geopolitical risk “was the starting point,” said Jukka Moisio, the chief executive and president of Nokian. That was not the case before Russia invaded Ukraine on Feb. 24, 2022.Nokian Tyres’ altered business strategy highlights the transformed global economic playing field that governments and companies are confronting. As the war in Ukraine drags on and tensions rise between the United States and China, critical decisions about offices, supply chains, investments and sales are no longer primarily ruled by concerns about costs.As the world re-globalizes, assessments of political threats loom much larger than before.Oradea, Romania, became Nokian Tyres’ top choice for a new factory.Andreea Campeanu for The New York TimesThe new factory is going on a 50-acre site.Andreea Campeanu for The New York Times“This is a world that has fundamentally changed,” said Henry Farrell, a political scientist at Johns Hopkins. “We cannot just think in terms of innovation and efficiency. We have to think about security, too.”For Nokian Tyres, which first sold shares on the Helsinki stock exchange in 1995, the new reality struck like a hammer blow. Roughly 80 percent of Nokian’s passenger car tires were manufactured in Russia. And the country accounted for 20 percent of its sales.The perils of over-concentration hit home, Mr. Moisio said, “when your company loses billions.”Within six weeks of the war’s start, it became clear that the company had no choice but to exit Russia and ramp up production elsewhere. Rubber had been added to the European Union’s rapidly expanding package of sanctions. Public sentiment in Finland soured. The share price plunged. In January 2022, the share price was over €34; today it’s €8.25.“We were very exposed,” Mr. Moisio said, sipping coffee in a sunny conference room at the company’s low-key Helsinki office. The Russian operation had high returns, but it also had high risks, a fact that, over time, had faded from view.Diversifying may not be as efficient or cheap, he said, but “it’s far more secure.”With roughly 80 percent of its production located in Russia, “we were very exposed” when Russia attacked Ukraine, said Jukka Moisio, Nokian’s chief executive.Juho Kuva for The New York TimesC-suite executives are relearning that the market often fails to accurately measure risk. A January survey of 1,200 global chief executives by the consulting firm EY found that 97 percent had altered their strategic investment plans because of new geopolitical tensions. More than a third said they were relocating operations.China, which has become an increasingly fraught home for foreign businesses and investment, is among the places that firms are leaving. Roughly one in four companies planned to move operations out of the country, a survey conducted last year by the European Union Chamber of Commerce in China found.Businesses are suddenly finding themselves “stranded in the no-man’s land of warring empires,” Mr. Farrell and his co-author, Abraham Newman, argue in a new book.Mr. Moisio’s tenure at Nokian has coincided with the triple crown of crises. He started in May 2020, a few months after the Covid-19 pandemic essentially shut down global commerce. Like other companies, Nokian hunkered down, cutting production and capital spending. Its lack of outstanding debt helped it ride out the storm.And when the economy bounced back, Nokian scrambled to restart production and restock raw materials amid a huge breakdown of the supply chain and transportation. The war posed an existential threat to Nokian’s operations.Adding production lines to existing facilities is often the fastest and cheapest way to increase output. Still, Nokian decided not to expand its operation in Russia.Production there was already concentrated, Mr. Moisio said, but more important, the persistent supply chain bottlenecks underscored the added risks and costs of transporting materials over long distances.The Nokian Tyres main office in Nokia, Finland.Juho Kuva for The New York TimesNewly completed tires on the production line. Nokian is moving manufacturing closer to specific markets.Juho Kuva for The New York TimesGoing forward, instead of locating 80 percent of production in one spot, often far from the market, 80 percent of production would be local or regional.“It turned upside down,” Mr. Moisio said.Tires for the Nordic market would be produced in Finland. Tires for American customers would be manufactured in the United States. And in the future, Europe would be serviced by a European factory.Diversification had, to some extent, already been incorporated into the company’s strategic plan. It opened a plant in Dayton, Tenn., in 2019, in addition to the original factory that operated in Nokia, the Finnish town that gave the tire maker its name.At the end of 2021, the company opened new production lines at both of those plants.When it came time to build the next factory, executives figured it would be in Eastern Europe, close to its largest European markets in Germany, Austria, Switzerland and France, as well as Poland and the Czech Republic.That moment came much sooner than anyone expected.In June 2022, less than four months after the invasion of Ukraine, Nokian executives asked the board to approve an exit from Russia and the construction of a new plant.Negotiations to leave Russia commenced, as did a high-speed search for a new location. Aided by the consulting firm Deloitte, the site assessment process, which included dozens of candidates across Europe, was completed in four months, said Adrian Kaczmarczyk, senior vice president of supply operations. By comparison, in 2015 Deloitte took nine months to recommend a site in a single country, the United States.Nokian expedited its search for a site, selecting Oradea in just four months, said Adrian Kaczmarczyk, senior vice president of supply operations.Andreea Campeanu for The New York TimesMr. Kaczmarczyk and engineers examining designs for the project.Andreea Campeanu for The New York TimesThe aim was to start commercial production by early 2025.Serbia had a flourishing automotive sector, but was eliminated from the get-go because it was in neither the European Union nor NATO. Turkey was a member of NATO but not the European Union. And Hungary was labeled high risk because of its illiberal prime minister, Viktor Orban, and close relationship with Russia.At each successive round, a long list of other considerations kicked in. Where were the closest highway, harbor and rail lines? Was there a sufficient pool of qualified employees? Was land available? Could permitting and construction time be fast-tracked? How pro-business were the authorities?Nokian would have looked to reduce a new factory’s carbon footprint in any event, Mr. Moisio, the chief executive, said. But the decision to commit to a 100 percent emissions-free plant probably would not have happened in the absence of war. After all, cheap gas from Russia was what helped lure Nokian there in the first place. Now, the disappearance of that supply accelerated the company’s thinking about ending dependence on fossil fuels.“Disruption allowed us to think differently,” Mr. Moisio said.As the winnowing progressed, a complex matrix of small and large considerations came into play. Was there good health care and an international school where foreign managers could send their children? What was the likelihood of natural disasters?Countries and cities fell out for various reasons. Slovenia and the Czech Republic were considered low-to-medium-risk countries, but Mr. Kaczmarczyk said they couldn’t find appropriate plots of land.A machine operator monitoring equipment on the production line inside the factory in Nokia.Juho Kuva for The New York TimesTires being made on the production line.Juho Kuva for The New York TimesSlovakia fell into the same bucket and already had a large automotive industry. Bratislava, though, made clear it had no interest in attracting more heavy industry, only information technology, Mr. Kaczmarczyk said.At the end, six candidates made Deloitte’s final cut: two sites in Romania, two in Poland, and one each in Portugal and Spain.The messy mix of new and old considerations that businesses have to contemplate were evident in the list of finalists. Geopolitics, as the Nokian Tyres chief executive said, had been a starting point, but it was not necessarily the end point.Spain has virtually no geopolitical risk. And the site in El Rebollar had a large talent pool, but Deloitte ruled it out because of high wage costs and heavy labor regulations. Portugal, another country with no security risk, was rejected because of worries about the power supply and the speed of the permitting process.Poland, along with Hungary and Serbia, had been labeled high risk despite its staunch anti-Russia stance. It has an antidemocratic government and has repeatedly clashed with the European Commission over the primacy of European legislation and the independence of Poland’s courts.Yet low labor costs, the presence of other multinational employers and a quick permitting process outweighed the worries enough to elevate the sites in Gorzow and Konin to second and third place.Oradea, the top recommendation, ultimately offered a better balance among the company’s competing priorities. The cost of labor in Romania, like Poland, was among the lowest in Europe. And its risk rating, though labeled relatively high, was lower than Poland’s.The factory in Nokia. The low cost of labor in Romania attracted the company.Juho Kuva for The New York TimesStretching the lining for tires. The main raw materials for tires are natural rubber, synthetic rubber, soot and oil.Juho Kuva for The New York TimesThere were other pluses as well in Oradea. Construction could start immediately; utilities were already in place; a new solar power plant was in the works. The amount of development grants from the European Union for companies investing in Romania was larger than in Poland. And local officials were enthusiastic.Mihai Jurca, Oradea’s city manager, detailed the area’s appeal during a tour of the turreted confection of Art Nouveau buildings in the renovated city center.“It was a flourishing cultural and commercial city, a junction point between East and West,” in the early 20th century, under the Austro-Hungarian Empire, Mr. Jurca said.Today the city, an affluent economic hub of 220,000 with a university, has solicited businesses and European Union funds, while constructing industrial parks that house domestic and international companies like Plexus, a British electronics manufacturer, and Eberspaecher, a German automotive supplier.Nokian is not looking to replicate the kind of megafactory in Romania that it ran in Russia — or anywhere else, for that matter. The idea of concentrating production is “old-fashioned,” Mr. Moisio said.For him, the company emerged from crisis mode on March 16, the day $258 million from sale of its Russian operation landed in Nokian’s bank account. Although only a fraction of the total value, the amount helped finance the construction and closed out the company’s involvement with Russia.Now uncertainty is the norm, Mr. Moisio said, and business leaders need to constantly be asking: “What can we do? What’s our Plan B?”Oradea “was a flourishing cultural and commercial city, a junction point between East and West,” in the early 20th century, said Mihai Jurca, the city manager.Andreea Campeanu for The New York TimesOradea is an affluent hub of 220,000 people with a university, and has solicited businesses and European Union funds.Andreea Campeanu for The New York Times More

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    Yellen’s China Visit Aims to Ease Tensions Amid Deep Divisions

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    Mutual skepticism between the United States and China over a wide range of economic and security issues has festered in recent years.The last time a U.S. Treasury secretary visited China, Washington and Beijing were locked in a trade war, the Trump administration was preparing to label China a currency manipulator, and fraying relations between the two countries were roiling global markets.Four years later, as Treasury Secretary Janet L. Yellen prepares to arrive in Beijing, many of the economic policy concerns that have been festering between the United States and China remain — or have even intensified — despite the Biden administration’s less antagonistic tone.The tariffs that President Donald J. Trump imposed on Chinese goods are still in effect. President Biden has been working to restrict China’s access to critical technology such as semiconductors. And new restrictions curbing American investment in China are looming.Treasury Department officials have downplayed expectations for major breakthroughs on Ms. Yellen’s four-day trip, which begins when she arrives in Beijing on Thursday. They suggest instead that her meetings with senior Chinese officials are intended to improve communication between the world’s two largest economies. But tensions between United States and China remain high, and conversations between Ms. Yellen and her counterparts are likely to be difficult. She met in Washington with Xie Feng, China’s ambassador, on Monday, and the two officials had a “frank and productive discussion,” according to the Treasury.Here are some of the most contentious issues that have sown divisions between the United States and China.Technology and trade controlsChinese officials are still smarting at the Biden administration’s 2022 decision to place significant limitations on the kinds of advanced semiconductors and chip-making machinery that can be sent to China. Those limits have hampered China’s efforts to develop artificial intelligence and other kinds of advanced computing that are expected to help power each country’s economy and military going forward.The government of the Netherlands, which is home to semiconductor machinery maker ASML, on Friday announced new restrictions on machinery exports to China. On Monday, China placed restrictions on exports of germanium and gallium, two metals used to make chips.The Biden administration is mulling further controls on advanced chips and on American investment into cutting-edge Chinese technology.Semiconductors have always been one of the biggest and most valuable categories of U.S. exports to China, and while the Chinese government is investing heavily in its domestic capacity, it remains many years behind the United States.The Biden administration’s subsidy program to strengthen the U.S. semiconductor industry has also rankled Chinese officials, especially since it includes restrictions on investing in China. Companies that accept U.S. government money to build new chip facilities in the United States are forbidden to make new, high-tech investments in China. And while Chinese officials — and some American manufacturers — were hopeful that the Biden administration would lift tariffs on hundreds of billions of dollars of Chinese imports, that does not seem to be in the offing. While Ms. Yellen has questioned the efficacy of tariffs, other top officials within the administration see the levies as helpful for encouraging supply chains to move out of China.The administration is employing both carrots and sticks to carry out a policy of “de-risking” or “friend-shoring” — that is, enticing supply chains for crucial products like electric vehicle batteries, semiconductors and solar panels out of China.President Biden during a visit to a Taiwan Semiconductor Manufacturing Company plant under construction in Phoenix. The Biden administration’s efforts to assist the U.S. semiconductor industry has rankled Chinese officials.T.J. Kirkpatrick for The New York TimesDeteriorating business environmentsCompanies doing business in China are increasingly worried about attracting negative attention from the government. The most recent target was Micron Technology, a U.S. memory chip maker that failed a Chinese security review in May. The move could cut Micron off from selling to Chinese companies that operate key infrastructure, putting roughly an eighth of the company’s global revenue at risk. In recent months, consulting and advisory firms in China with foreign ties have faced a crackdown.American officials are growing more concerned with the Chinese government’s use of economic coercion against countries like Lithuania and Australia, and they are working with European officials and other governments to coordinate their responses.Businesses are also alarmed by China’s ever-tightening national security laws, which include a stringent counterespionage law that took effect on Saturday. Foreign businesses in China are reassessing their activities and the market information they gather because the law is vague about what is prohibited. “We think this is very ill advised, and we’ve made that point to several members of the government here,” said R. Nicholas Burns, the U.S. ambassador to China, in an interview in Beijing.In the United States, companies with ties to China, like the social media app TikTok, the shopping app Temu and the clothing retailer Shein, are facing increasing scrutiny over their labor practices, their use of American customer data and the ways they import products into the United States.CurrencyChina’s currency, the renminbi, has often been a source of concern for American officials, who have at times accused Beijing of artificially weakening its currency to make its products cheaper to sell abroad.The renminbi’s recent weakness may pose the most difficult issue for Ms. Yellen. The currency is down more than 7 percent against the dollar in the past 12 months and down nearly 13 percent against the euro. That decline makes China’s exports more competitive in the United States. China’s trade surplus in manufactured goods already represents a tenth of the entire economy’s output.The renminbi is not alone in falling against the dollar lately — the Japanese yen has tumbled for various reasons, including rising interest rates in the United States as the Federal Reserve tries to tamp down inflation.Chinese economists have blamed that factor for the renminbi’s weakness as well. Zhan Yubo, a senior economist at the Shanghai Academy of Social Sciences, said the decline in the renminbi was the direct result of the Fed’s recent increases in interest rates.At the same time, China has been cutting interest rates to help its flagging economy. The interest rate that banks charge one another for overnight loans — a benchmark that tends to influence all other interest rates — is now a little over 5 percent in New York and barely 1 percent in Shanghai. That reverses a longstanding pattern in which interest rates were usually higher in China.The Fed’s rate increases have made it more attractive for companies and households to send money out of China and invest it in the United States, in defiance of Beijing’s stringent limits on overseas money movements.China pledged as part of the Phase 1 trade agreement with the United States three years ago not to seek an advantage in trade by pushing down the value of its currency. But the Biden administration’s options may be limited if China lets its currency weaken anyway.Global debtChina has provided more than $500 billion to developing countries through its lending program, making it one of the world’s largest creditors. Many of those borrowers, including several African nations, have struggled economically since the pandemic and face the possibility of defaulting on their debt payments.The United States, along with other Western nations, has been pressing China to allow some of those countries to restructure their debt and reduce the amount that they owe. But for more than two years, China has insisted that other creditors and multilateral lenders absorb financial losses as part of any restructuring, bogging down the loan relief process and threatening to push millions of people in developing countries deeper into poverty.In June, international creditors including China agreed to a debt relief plan with Zambia that would provide a grace period on its interest payments and extend the dates when its loans are due. The arrangement did not require that the World Bank or International Monetary Fund write off any debts, offering global policymakers like Ms. Yellen hope for similar debt restructuring in poorer countries.Human rights and national security issuesTensions over national security and human rights have created an atmosphere of mutual distrust and spilled over into economic relations. The flight of a Chinese surveillance balloon across the United States this year deeply unsettled the American public, and members of Congress have been pressing the administration to reveal more of what it knows about the balloon. Mr. Biden’s recent labeling of China’s leader, Xi Jinping, as a “dictator” also rankled Chinese officials and state-run media.American officials continue to be concerned about China’s human rights violations, including the suppression of the democracy movement in Hong Kong and the detention of mainly Muslim ethnic minorities in the Xinjiang region of northwestern China. A senior Treasury Department official, speaking on the condition of anonymity before Ms. Yellen’s trip, said the United States had no intention of shying away from its views on human rights during the meetings in China.Chinese officials continue to protest the various sanctions that the United States has issued against Chinese companies, organizations and individuals for national security threats and human rights violations — including sanctions against Li Shangfu, China’s defense minister. The Chinese government has cited those sanctions as a reason for its rejection of high-level military dialogues. More

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    How the G7 Oil Price Cap Has Helped Choke Revenue to Russia

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    Group of 7 leaders are prepared to celebrate the results of a novel effort to stabilize global oil markets and punish Moscow.In early June, at the behest of the Biden administration, German leaders assembled top economic officials from the Group of 7 nations for a video conference with the goal of striking a major financial blow to Russia.The Americans had been trying, in a series of one-off conversations last year, to sound out their counterparts in Europe, Canada and Japan on an unusual and untested idea. Administration officials wanted to try to cap the price that Moscow could command for every barrel of oil it sold on the world market. Treasury Secretary Janet L. Yellen had floated the plan a few weeks earlier at a meeting of finance ministers in Bonn, Germany.The reception had been mixed, in part because other countries were not sure how serious the administration was about proceeding. But the call in early June left no doubt: American officials said they were committed to the oil price cap idea and urged everyone else to get on board. At the end of the month, the Group of 7 leaders signed on to the concept.As the Group of 7 prepares to meet again in this week in Hiroshima, Japan, official and market data suggest the untried idea has helped achieve its twin initial goals since the price cap took effect in December. The cap appears to be forcing Russia to sell its oil for less than other major producers, when crude prices are down significantly from their levels immediately after Russia’s invasion of Ukraine.Data from Russia and international agencies suggest Moscow’s revenues have dropped, forcing budget choices that administration officials say could be starting to hamper its war effort. Drivers in America and elsewhere are paying far less at the gasoline pump than some analysts feared.Russia’s oil revenues in March were down 43 percent from a year earlier, the International Energy Agency reported last month, even though its total export sales volume had grown. This week, the agency reported that Russian revenues had rebounded slightly but were still down 27 percent from a year ago. The government’s tax receipts from the oil and gas sectors were down by nearly two-thirds from a year ago.Russian officials have been forced to change how they tax oil production in an apparent bid to make up for some of the lost revenues. They also appear to be spending government money to try to start building their own network of ships, insurance companies and other essentials of the oil trade, an effort that European and American officials say is a clear sign of success.“The Russian price cap is working, and working extremely well,” Wally Adeyemo, the deputy Treasury secretary, said in an interview. “The money that they’re spending on building up this ecosystem to support their energy trade is money they can’t spend on building missiles or buying tanks. And what we’re going to continue to do is force Russia to have these types of hard choices.”Some analysts doubt the plan is working nearly as well as administration officials claim, at least when it comes to revenues. They say the most frequently cited data on the prices that Russia receives for its exported oil is unreliable. And they say other data, like customs reports from India, suggests Russian officials may be employing elaborate deception measures to evade the cap and sell crude at prices well above its limit.“I’m concerned the Biden administration’s desperation to claim victory with the price cap is preventing them from actually acknowledging what isn’t working and taking the steps that might actually help them win,” said Steve Cicala, an energy economist at Tufts University who has written about potential evasion under the cap.The price cap was invented as an escape hatch to the financial penalties that the United States, Europe and others announced on Russian oil exports in the immediate aftermath of the invasion. Those penalties included bans preventing wealthy democracies from buying Russian oil on the world market. But early in the war, they essentially backfired. They drove up the cost of all oil globally, regardless of where it was produced. The higher prices delivered record exports revenues to Moscow, while driving American gasoline prices above $5 a gallon and contributing to President Biden’s sagging approval rating.A new round of European sanctions was set to hit Russian oil hard in December. Economists on Wall Street and in the Biden administration warned those penalties could knock oil off the market, sending prices soaring again. So administration officials decided to try to leverage the West’s dominance of the oil shipping trade — including how it is transported and financed — and force a hard bargain on Russia.Oil tankers near the port city of Nakhodka, Russia. Many analysts were concerned that a price cap might prompt Russia to restrict how much oil it pumped and sold. But the country has mostly kept producing at about the same levels it did when the war began.Tatiana Meel/ReutersUnder the plan, Russia could keep selling oil, but if it wanted access to the West’s shipping infrastructure, it had to sell at a sharp discount. In December, European leaders agreed to set the cap at $60 a barrel. They followed with other caps for different types of petroleum products, like diesel.Many analysts were skeptical it could work. A cap that was too punitive had the potential to encourage Russia to severely restrict how much oil it pumps and sells. Such a move could drive crude prices skyward. Alternatively, a cap that was too permissive might have failed to affect Russian oil sales and revenues at all.Neither scenario has happened. Russia announced a modest production cut this spring but has mostly kept producing at about the same levels it did when the war began.Fatih Birol, the executive director of the International Energy Agency, has called the price cap an important “safety valve” and a crucial policy that has forced Russia to sell oil for far less than international benchmark prices. Russian oil now trades for $25 to $35 a barrel less than other oil on the global market, Treasury Department officials estimate.“Russia played the energy card, and it didn’t win,” Mr. Birol wrote in a February report. “Given that energy is the backbone of Russia’s economy, it’s not surprising that its difficulties in this area are leading to wider problems. Its budget deficit is skyrocketing as military spending and subsidies to its population largely exceed its export income.”Biden administration officials say that there is no evidence of widespread evasion by Russia, and that Mr. Cicala’s analysis of Indian customs reports does not account for the rising cost of transporting Russian oil to India, which is embedded in the customs data. A White House official told reporters traveling with Mr. Biden in Hiroshima on Thursday that the Group of 7 leaders would adopt new measures meant to counter price-cap evasion in their meeting this weekend.There is no dispute that the world has avoided what was privately the largest concern for Biden officials last summer: another round of skyrocketing oil prices.American drivers were paying about $3.54 a gallon on average for gasoline on Monday. That was down nearly $1 from a year ago, and it is nowhere near the $7 a gallon some administration officials feared if the cap had failed to prevent a second oil shock from the Russian invasion. Gas prices are a mild source of relief for Mr. Biden as high inflation continues to hamper his approval among voters.After rising sharply in the months surrounding the Russian invasion, global oil prices have fallen back to late-2021 levels. The plunge is partly driven by economic cooling around the world, and it has persisted even as large producers like Saudi Arabia have curtailed production.Falling global prices have contributed to Russia’s falling revenues, but they are not the whole story. Reported sales prices for exported Russian oil, known as Urals, have dropped by twice as much as the global price for Brent crude.The Group of 7 leaders meeting in Japan this week will probably not spend much time on the cap, instead turning to other collective efforts to constrict Russia’s economy and revenues. And the biggest winners from the cap decision will not be at the summit.“The direct beneficiaries are mostly emerging market and lower-income countries that import oil from Russia,” Treasury officials noted in a recent report.The officials were referring to a handful of countries outside the Group of 7 — particularly India and China — that have used the cap as leverage to pay a discount for Russian oil. Neither India nor China joined the formal cap effort, but it is their oil consumers who are seeing the lowest prices from it. More

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    Biden Team to Counter Tech Espionage Unveils Cases Involving China and Russia

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    A new division set up by the government to pursue sanctions evasion and technology espionage announced arrests of individuals with ties to foreign governments.The Biden administration announced arrests and criminal charges on Tuesday in five cases involving sanctions evasion and technology espionage efforts linked to Russia, China and Iran.Two Russian nationals were taken into custody last week under accusations of sending aircraft parts to Russia in violation of sanctions imposed after the invasion of Ukraine. In another case, a former Apple engineer is accused of stealing the company’s autonomous vehicle technology to provide it to a Chinese competitor.The announcements were the work of a recently established “technology strike force,” which aims to protect critical American technology or data from theft by hostile nations. The strike force was set up in February and brings together agents with the Commerce and Justice Departments, as well as the F.B.I. and local attorneys offices.Federal agents are working to trace the global movement of U.S. goods and data, as well as the funds used to pay for them. The effort seeks to crack down on the global networks that are channeling goods and technology through opaque jurisdictions and middlemen to try to circumvent sanctions and technology restrictions imposed by the United States.In another case unveiled Tuesday, a California-based engineer is accused of trying to steal source code for advanced machinery that can be used to make parts for military submarines and aircraft to sell it to several Chinese companies.Two other cases were announced, including charges against China-based agents who were accused of attempting to send materials used in weapons of mass destruction to Iran, according to U.S. officials, and charges involving the alleged provision of advanced technology to Russia that could be repurposed by the Russian military.Matthew G. Olsen, the assistant attorney general of the Justice Department’s national security division, told reporters that the cases showed the U.S. government’s ability “to accelerate investigations and surge our collective resources to defend against these threats.”“Foreign nation states are working hard to acquire our most sensitive technologies,” said Matthew Axelrod, the assistant secretary for export enforcement at the Commerce Department’s Bureau of Industry and Security. “We’re working even harder to stop them.”Oleg Patsulya and Vasilii Besedin, the two Russian nationals who were arrested last week under suspicion of trying to procure millions of dollars of prohibited parts for Russian airlines, were charged with conspiracy to violate the Export Control Reform Act and conspiracy to commit international money laundering. If convicted, they would face up to 20 years in prison for each charge.The Commerce Department issued a temporary denial order Tuesday against the men, which prohibits them from transactions involving any U.S. products for 180 days.The order also applies to a freight forwarder in the Maldives that the men had utilized to route shipments of prohibited products into Russia, as well as a Russian airline, Smartavia, that sought to purchase these products.On Thursday, federal officials seized luxury goods purchased with proceeds of their scheme, a U.S. official said. More