Embargoes and Sanctions

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    Amid Sanctions, Putin Reminds the World of His Own Economic Weapons

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    The Russian leader has stabilized the ruble and kept Europe’s leaders guessing by threatening to cut off energy. But he has left the country financially isolated.LONDON — In the five weeks since Russia invaded Ukraine, the United States, the European Union and their allies began an economic counteroffensive that has cut off Russia’s access to hundreds of billions of dollars of its own money and halted a large chunk of its international commerce. More than 1,000 companies, organizations and individuals, including members of President Vladimir V. Putin’s inner circle, have been sanctioned and relegated to a financial limbo.But Mr. Putin reminded the world this past week that he has economic weapons of his own that he could use to inflict some pain or fend off attacks.Through a series of aggressive measures taken by the Russian government and its central bank, the ruble, which had lost nearly half of its value, clawed its way back to near where it was before the invasion.And then there was the threat to stop the flow of gas from Russia to Europe — which was set off by Mr. Putin’s demand that 48 “unfriendly countries” violate their own sanctions and pay for natural gas in rubles. It sent leaders in the capitals of Germany, Italy and other allied nations scrambling and showcased in the most visible way since the war began how much they need Russian energy to power their economies.It was that dependency that caused the United States and Europe to exempt fuel purchases from the stringent sanctions they imposed on Russia at the start of the war. The European Union gets 40 percent of its gas and a quarter of its oil from Russia. A cutoff from one day to the next, Chancellor Olaf Scholz of Germany warned this past week, would plunge “our country and the whole of Europe into a recession.”President Vladimir V. Putin has taken steps to insulate Russia’s economy from the impact of sanctions and to prop up the ruble.Pool photo by Mikhail KlimentyevFor the time being, it appears that the prospect of an imminent stoppage of gas has been averted. But Mr. Putin’s sudden demand for rubles helped prompt Germany and Austria to prepare their citizens for what might come. They took the first official steps toward rationing, with Berlin starting the “early warning” phase of planning for a natural gas emergency.Although President Biden has announced plans to release 180 million barrels of oil from the U.S. reserve supply over the next six months and diverted more liquefied natural gas to Europe, that still would not be enough to replace all of what Russia supplies. Russian oil exports normally represent more than one of every 10 barrels the world consumes.Europe’s ongoing energy purchases send as much as $850 million each day into Russia’s coffers, according to Bruegel, an economics institute in Brussels. That money helps Russia to fund its war efforts and blunts the impact of sanctions. Because of soaring energy prices, gas export revenues from Gazprom, the Russian energy giant, injected $9.3 billion into the country’s economy in March alone, according an estimate by Oxford Economics, a global advisory firm.“The lesson for the West is that the effectiveness of financial sanctions can only go so far absent trade sanctions,” the firm said in a research briefing.Mr. Putin’s feints and jabs — at one point this past week he promised to stop and continue gas deliveries in the same statement — have also kept European leaders off-balance as they try to divine his strategy and motivations.The war has prompted democracies to move away from relying on Russian exports. They’ve proposed cutting natural gas deliveries by two-thirds before next winter and to end them altogether by 2027. Those goals may be overly ambitious, experts say.In any case, the transition to other suppliers and eventually to more renewable energy sources will be expensive and painful. On the whole, Europeans may be poorer and colder at least for a few years because of spiraling prices and dampened economic activity caused by energy shortages.And unlike in Russia, governments in these countries have to answer to voters.“Putin has already demonstrated he’s willing to sacrifice civilians — his and Ukrainians — to score a win,” said Meg Jacobs, a historian at Princeton University. For European democracies, turning down thermostats, reducing speed limits and driving less is a choice, she said. “It only works with mass cooperation.”A liquefied natural gas facility in Italy. President Biden has diverted more gas to Europe, but that will still not be enough to replace what Russia supplies.Clara Vannucci for The New York TimesBut leverage, like gas, is a limited resource. And Mr. Putin’s willingness to use it now means that he will have less of it in the future. It will not be an easy transition for Russia either. Most analysts believe that Europe’s aggressive moves to reduce its reliance on Russian energy will have far-reaching consequences, however.“They are done with Russian gas,” David L. Goldwyn, who served as a State Department special envoy on energy in the Obama administration, said of Europe. “I think even if this war would end, and even if you had a new government in Russia, I think there’s no going back.”The European Commission president, Ursula von der Leyen, said as much when she announced the new energy plan last month: “We simply cannot rely on a supplier who explicitly threatens us.”Security concerns aren’t the only development that has undermined Russia’s standing as a long-term energy supplier. What seemed surprising to economists, lawyers and policymakers about Mr. Putin’s demand to be paid in rubles was that it would have violated sacrosanct negotiated contracts and revealed Russia’s willingness to be an unreliable business partner.As he has tried to wield his energy clout externally, Mr. Putin has taken steps to insulate Russia’s economy from the impact of sanctions and to prop up the ruble. Few things can undermine a country as systemically as an abruptly weakened currency.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    U.S. Levels New Sanctions on Russian Tech Companies

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    WASHINGTON — The Treasury Department on Thursday leveled new sanctions on Russian technology companies and illicit procurement networks that the country is using to evade existing sanctions, expanding the Biden administration’s effort to punish Russia for its invasion of Ukraine by crippling its economy.The new measures reflect the challenge that the United States and its allies continue to face in enforcing restrictions that have been imposed to cut off Russia’s central bank, financial institutions and oligarchs from the global financial system, and the need to disrupt Russian supply chains and efforts to conceal transactions.“Russia not only continues to violate the sovereignty of Ukraine with its unprovoked aggression, but also has escalated its attacks striking civilians and population centers,” the Treasury secretary, Janet L. Yellen, said in a statement. “We will continue to target Putin’s war machine with sanctions from every angle until this senseless war of choice is over.”Among the 34 organizations and individuals targeted are Serniya and Sertal, Moscow-based companies that illicitly procure dual-use equipment and technology for Russia’s defense sector.The Treasury Department is also imposing sanctions on several technology companies that produce computer hardware, software and microelectronics that are used by Russia’s defense sector. Among them is Joint Stock Company Mikron, Russia’s largest chip-maker.Adewale Adeyemo, the deputy Treasury secretary, foreshadowed the sanctions during a speech on Tuesday, when he said that Russia’s military industrial sector would be the next to face restrictions.“We are planning to target additional sectors that are critical to the Kremlin’s ability to operate its war machine, where a loss of access will ultimately undermine Russia’s ability to build and maintain the tools of war that rely on these inputs,” Mr. Adeyemo said in his speech at Chatham House, an international affairs think tank in London. “In addition to sanctioning companies in sectors that enable the Kremlin’s malign activities, we also plan to take actions to disrupt their critical supply chains.” More

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    Why the U.S. Can’t Quickly Wean Europe From Russian Gas

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    The Biden administration’s plan to send more natural gas to Europe will be hampered by the lack of export and import terminals.HOUSTON — President Biden announced Friday that the United States would send more natural gas to Europe to help it break its dependence on Russian energy. But that plan will largely be symbolic, at least in the short run, because the United States doesn’t have enough capacity to export more gas and Europe doesn’t have the capacity to import significantly more.In recent months, American exporters, with President Biden’s encouragement, have already maximized the output of terminals that turn natural gas into a liquid easily shipped on large tankers. And they have diverted shipments originally bound for Asia to Europe.But energy experts said that building enough terminals on both sides of the Atlantic to significantly expand U.S. exports of liquefied natural gas, or L.N.G., to Europe could take two to five years. That reality is likely to limit the scope of the natural gas supply announcement that Mr. Biden and the European Commission president, Ursula von der Leyen, announced on Friday.“In the near term there are really no good options, other than begging an Asian buyer or two to give up their L.N.G. tanker for Europe,” said Robert McNally, who was an energy adviser to former President George W. Bush. But he added that once sufficient gas terminals were built, the United States could become the “arsenal for energy” that helps Europe break its dependence on Russia. Friday’s agreement, which calls on the United States to help the European Union secure an additional 15 billion cubic meters of liquefied natural gas this year, could also undermine efforts by Mr. Biden and European officials to combat climate change. Once new export and import terminals are built, they will probably keep operating for several decades, perpetuating the use of a fossil fuel much longer than many environmentalists consider sustainable for the planet’s well-being.For now, however, climate concerns appear to be taking a back seat as U.S. and European leaders seek to punish President Vladimir V. Putin of Russia for invading Ukraine by depriving him of billions of dollars in energy sales.The United States has already increased energy exports to Europe substantially. So far this year, nearly three-quarters of U.S. L.N.G. has gone to Europe, up from 34 percent for all of 2021. As prices for natural gas have soared in Europe, American companies have done everything they can to send more gas there. The Biden administration has helped by getting buyers in Asian countries like Japan and South Korea to forgo L.N.G. shipments so they could be sent to Europe.The United States has plenty of natural gas, much of it in shale fields from Pennsylvania to the Southwest. Gas bubbles out of the ground with oil from the Permian Basin, which straddles Texas and New Mexico, and producers there are gradually increasing their output of both oil and gas after greatly reducing production in the first year of the pandemic, when energy prices collapsed.But the big problem with sending Europe more energy is that natural gas, unlike crude oil, cannot easily be put on oceangoing ships. The gas has to first be chilled in an expensive process at export terminals, mostly on the Gulf Coast. The liquid gas is then poured into specialized tankers. When the ships arrive at their destination, the process is run in reverse to convert L.N.G. back into gas.A large export or import terminal can cost more than $1 billion, and planning, obtaining permits and completing construction can take years. There are seven export terminals in the United States and 28 large-scale import terminals in Europe, which also gets L.N.G. from suppliers like Qatar and Egypt.Some European countries, including Germany, have until recently been uninterested in building L.N.G. terminals because it was far cheaper to import gas by pipeline from Russia. Germany is now reviving plans to build its first L.N.G. import terminal on its northern coast.A pier in Wilhelmshaven, Germany, the port where Uniper, a German energy company, wanted to build a liquified natural gas terminal before it was shelved. Now Germany is reviving plans to build it.The New York Times“Europe’s need for gas far exceeds what the system can supply,” said Nikos Tsafos, an energy analyst at the Center for Strategic and International Studies in Washington. “Diplomacy can only do so much.”In the longer term, however, energy experts say the United States could do a lot to help Europe. Along with the European Union, Washington could provide loan guarantees for U.S. export and European import terminals to reduce costs and accelerate construction. Governments could require international lending institutions like the World Bank and the European Investment Bank to make natural gas terminals, pipelines and processing facilities a priority. And they could ease regulations that gas producers, pipeline builders and terminal developers argue have made it more difficult or expensive to build gas infrastructure.Charif Souki, executive chairman of Tellurian, a U.S. gas producer that is planning to build an export terminal in Louisiana, said he hoped the Biden administration would streamline permitting and environmental reviews “to make sure things happen quickly without micromanaging everything.” He added that the government could encourage banks and investors, some of whom have recently avoided oil and gas projects in an effort to burnish their climate credentials, to lend to projects like his.“If all the major banks in the U.S. and major institutions like BlackRock and Blackstone feel comfortable investing in hydrocarbons, and they are not going to be criticized, we will develop $100 billion worth of infrastructure we need,” Mr. Souki said.A handful of export terminals are under construction in the United States and could increase exports by roughly a third by 2026. Roughly a dozen U.S. export terminal projects have been approved by the Federal Energy Regulatory Commission but can’t go ahead until they secure financing from investors and lenders.“That’s the bottleneck,” Mr. Tsafos said.Roughly 10 European import terminals are being built or are in the planning stages in Italy, Belgium, Poland, Germany, Cyprus and Greece, but most still don’t have their financing lined up.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Biden Plans Sanctions on Russian Lawmakers as He Heads to Europe

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    A chief goal of the meetings this week is to show that Russia’s invasion of Ukraine will not lead to sniping and disagreement among the United States and its allies.WASHINGTON — President Biden will announce sanctions this week on hundreds of members of Russia’s lower house of Parliament, according to a White House official familiar with the announcement, as the United States and its allies reach for even stronger measures to punish President Vladimir V. Putin for his monthlong invasion of Ukraine.The announcement is scheduled to be made during a series of global summits in Europe on Thursday, when Mr. Biden will press Western leaders for even more aggressive economic actions against Russia as its forces continue to rain destruction on cities in Ukraine.In Brussels on Thursday, Mr. Biden and other leaders will announce a “next phase” of military assistance to Ukraine, new plans to expand and enforce economic sanctions, and an effort to further bolster NATO defenses along the border with Russia, Jake Sullivan, the White House national security adviser, said on Tuesday.“The president is traveling to Europe to ensure we stay united, to cement our collective resolve, to send a powerful message that we are prepared and committed to this for as long as it takes,” Mr. Sullivan told reporters.Officials declined to be specific about the announcements, saying the president will wrap up the details of new sanctions and other steps during his deliberations in Brussels. But Mr. Biden faces a steep challenge as he works to confront Mr. Putin’s war, which Mr. Sullivan said “will not end easily or rapidly.”The sanctions on Russian lawmakers, which were reported earlier by The Wall Street Journal, will affect hundreds of members of the State Duma, the lower house of Parliament, according to the official, who requested anonymity to discuss diplomatic deliberations that have not yet been publicly acknowledged.Earlier this month, the United States announced financial sanctions on 12 members of the Duma. The announcement on Thursday will go far beyond those sanctions in what one senior official called a “very sweeping” action. Another official said details of the sanctions were still being finalized.The NATO alliance has already pushed the limits of economic sanctions imposed by European countries, which are dependent on Russian energy. And the alliance has largely exhausted most of its military options — short of a direct confrontation with Russia, which Mr. Biden has said could result in World War III.That leaves the president and his counterparts with a relatively short list of announcements they can deliver on Thursday after three back-to-back, closed-door meetings. Mr. Sullivan said there will be “new designations, new targets” for sanctions inside Russia. And he said the United States would make new announcements about efforts to help European nations wean themselves off Russian energy.Still, the chief goal of the summits — which have come together in just a week’s time through diplomats in dozens of countries — may be a further public declaration that Mr. Putin’s invasion will not lead to sniping and disagreement among the allies.Despite Russia’s intention to “divide and weaken the West,” Mr. Sullivan said, the allies in Europe and elsewhere have remained “more united, more determined and more purposeful than at any point in recent memory.”A damaged residential building in Kyiv, Ukraine, on Friday.Ivor Prickett for The New York TimesSo far, that unity has done little to limit the violence in Ukraine. The United States and Europe have already imposed the broadest array of economic sanctions ever on a country of Russia’s size and wealth, and there have been early signs that loopholes have blunted some of the bite that the sanctions on Russia’s central bank and major financial institutions were intended to have on its economy.Despite speculation that Russia might default on its sovereign debt last week, it was able to make interest payments on $117 million due on two bonds denominated in U.S. dollars. And after initially plunging to record lows this month, the ruble has since stabilized.Russia was able to avert default for now because of an exception built into the sanctions that allowed it to continue making payments in dollars through May 25. That loophole protects foreign investors and gives Russia more time to devastate Ukraine without feeling the full wrath of the sanctions.Meanwhile, although about half of Russia’s $640 billion in foreign reserves is frozen, it has been able to rebuild that by continuing to sell energy to Europe and other places.“The fact that Russia is generating a large trade and current account surplus because of energy exports means that Russia is generating a constant hard currency flow in euros and dollars,” said Robin Brooks, the chief economist at the Institute of International Finance. “If you’re looking at sanctions evasion or the effectiveness of sanctions, this was always a major loophole.”The president is scheduled to depart Washington on Wednesday morning before summits on Thursday with NATO, the Group of 7 nations and the European Council, a meeting of all 27 leaders of European Union countries. On Friday, Mr. Biden will head to Poland, where he will discuss the Ukrainian refugees who have flooded into the country since the start of the war. He will also visit with American troops stationed in Poland as part of NATO forces.Mr. Biden is expected to meet with President Andrzej Duda of Poland on Saturday before returning to the White House later that day.White House officials said a key part of the announcements in Brussels would be new enforcement measures aimed at making sure Russia is not able to evade the intended impact of sanctions.“That announcement will focus not just on adding new sanctions,” Mr. Sullivan said, “but on ensuring that there is a joint effort to crack down on evasion on sanctions-busting, on any attempt by any country to help Russia basically undermine, weaken or get around the sanctions.”He added later, “So stay tuned for that.”Sanctions experts have suggested that Western allies could allow Russian energy exports to continue but insist that payments be held in escrow accounts until Mr. Putin halts the invasion. That would borrow from the playbook the United States used with Iran, when it allowed some oil exports but required the revenue from those transactions to be held in accounts that could be used only to finance bilateral trade.Russia-Ukraine War: Key DevelopmentsCard 1 of 3A new diplomatic push. More

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    Amid Russia Invasion, I.R.S. Aims to Police Oligarch Sanctions

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    It wants to add agents to a 3,000-person investigations unit to help crack down on attempts by Russian oligarchs to evade sanctions.WASHINGTON — The Internal Revenue Service is pressing Congress to devote more resources to the agency as it takes an increasingly central role in the Biden administration’s efforts to prevent Russia and its oligarchs from evading the punishing sanctions that the United States has imposed.Aides to Charles P. Rettig, the I.R.S. commissioner, told congressional staff on Wednesday afternoon that the agency’s criminal investigations unit, which has 3,000 employees, needs to grow about 40 percent over the next five years. It wants a net gain of about 1,300 after attrition. That could require Congress to invest more than $5 billion in the agency, which is trying to oversee a sprawling sanctions program and coping with evasion tactics that have become more sophisticated as a result of the proliferation of digital assets.The Biden administration is already looking to bolster the overall I.R.S., including trying to increase its budget by $80 billion over 10 years in an attempt to crack down on tax cheats. That effort has faced resistance from Republicans, who have historically tried to starve the agency of money. The Treasury Department, which oversees the I.R.S., has not previously specified the need for funds for the criminal investigations division.In a report circulated among members of Congress that was reviewed by The New York Times, the I.R.S. said it needed additional resources because the criminal investigations team had been asked to assist with interagency efforts to enforce sanctions related to Russia’s invasion of Ukraine. The agency asserted that investing in the division would pay off, noting that its current $600 million annual budget allowed it to identify $10.4 billion in tax fraud and financial crimes last year.“Working with law enforcement entities across government, the I.R.S. is already in the process of investigating Russian oligarchs and those who facilitate the illegal movement of money or assets on their behalf,” the report said.The I.R.S. has been involved in more than 20 investigations related to money laundering by oligarchs since 2017, working with other law enforcement agencies to track assets and seize property, the report said.The criminal investigations division of the I.R.S. has a storied history; its agents have helped take down notorious tax cheats such as Pete Rose and Al Capone. Like the rest of the I.R.S., the unit has seen its budget depleted in recent years. The size of its staff declined 25 percent over the last decade.In the last month, its task became much more complicated.The United States has enacted sweeping sanctions on Russia in response to its invasion of Ukraine, freezing the assets of its central bank, blocking transactions associated with major financial institutions and targeting top government officials and oligarchs. Experts consider the sanctions to be the most robust ever directed at a major economy, but they are also expected to spur aggressive evasion measures by Russians.I.R.S. officials said they would use financial tracing technology and work with banks and international counterparts to track how oligarchs and others were shifting money and assets around the world in violation of the sanctions. They are looking for signs of newly created fictitious businesses that could be used to shelter assets and transactions involving cryptocurrencies, which criminals use to move money anonymously.According to the report, the I.R.S. seized $3.6 billion of stolen cryptocurrency last year and has already surpassed that this year.Russia-Ukraine War: Key Things to KnowCard 1 of 4Zelensky’s appeals. More

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    Exports to Russia Blocked by U.S. and Its Allies

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    To try to halt the war in Ukraine, the U.S. and its allies have imposed the most sweeping export controls seen in decades on Russia. Now they have to enforce them.WASHINGTON — The United States, in partnership with its allies, has hit Russia with some of the most sweeping export restrictions ever imposed, barring companies across the world from sending advanced technology in order to penalize President Vladimir V. Putin for his invasion of Ukraine.The restrictions are aimed at cutting off the flow of semiconductors, aircraft components and other technologies that are crucial to Russia’s defense, maritime and aerospace industries, in a bid to cripple Mr. Putin’s ability to wage war. But the extent to which the measures hinder Russia’s abilities will depend on whether companies around the globe follow the rules.Enforcing the new restrictions poses a significant challenge as governments try to police thousands of companies. But the task could be made easier because the United States is acting in concert with so many other countries.The European Union, Japan, Australia, Canada, New Zealand, Britain and South Korea have joined the United States in imposing their own restrictions. And governments including Singapore and Taiwan, a major global producer of semiconductors, have indicated they will support the rules.“Because we have the full cooperation and alignment with so many countries, it makes enforcement a lot easier,” Gina Raimondo, the U.S. secretary of commerce, said in an interview. “Every country is going to be doing enforcement.”“That’s part of the power, if you will, of having so much collaboration,” she added.Officials from the Commerce Department, which is in charge of enforcing the U.S. rules, have already begun digging through shipping containers and detaining electronics, aircraft parts and other goods that are destined for Russia. On March 2, federal agents detained two speedboats at the Port of Charleston valued at $150,000 that were being exported to Russia, according to senior U.S. officials.To look for any potential violators, federal agents will be combing through tips from industry sources and working with Customs and Border Protection to find anomalies in export data that might point to shipments to Russia. They are also reaching out to known exporters to Russia to get them on board with the new restrictions, speaking to about 20 or 30 companies a day, U.S. officials said.Their efforts extend beyond U.S. borders. On March 3, Commerce Department officials spoke to a gathering of 300 businesspeople in Beijing about how to comply with the new restrictions. U.S. officials have also been coordinating with other governments to ensure that they are taking a tough stance on enforcement, senior U.S. officials said.Emily Kilcrease, director of the Energy, Economics and Security Program at the Center for a New American Security, said that the level of allied cooperation in forging the export controls was “completely unprecedented,” and that international coordination would have an important upside.“The allied countries will be active partners in enforcement efforts, rather than the United States attempting to enforce its own unilateral rules extraterritorially,” she said.It remains to be seen how effective the rules are in degrading Russia’s military capability or dissuading its aggression against Ukraine. But in their initial form, the broad scope of the measures looks like a victory for the multilateralism that President Biden promised to restore.Mr. Biden entered office pledging to mend ties with Europe and other allies that had been alienated by former President Donald J. Trump’s “America first” approach. A key part of the argument was that the United States could exert more pressure on countries like China when it was not acting alone.That approach has been particularly important for export controls, which experts argue can do more harm than good when imposed by only one country — a criticism that was sometimes leveled at the export controls the Trump administration issued on China.“Because we have the full cooperation and alignment with so many countries, it makes enforcement a lot easier,” Commerce Secretary Gina Raimondo said.Doug Mills/The New York TimesThe Russian invasion of Ukraine has unified Western governments like few issues before. But even with countries eager to penalize Russia, coordinating restrictions on a vast array of complex technologies among more than 30 governments was not simple. The Commerce Department held more than 50 discussions with officials from other countries between the end of January and Feb. 24, when the controls were announced, as they hashed out the details, senior U.S. officials said.Much of that effort fell to Matthew S. Borman, a three-decade employee of the Commerce Department, who in late January began near-daily conversations with the European Commission and other countries.In mid-February, Mr. Borman and a senior aerospace engineer flew to Brussels for meetings with Peter Sandler, the European director general of trade, and other staff. As a “freedom convoy” protesting coronavirus restrictions attempted to roll into Brussels, they worked from early in the morning until late in the night amid reams of paper and spreadsheets of complex technological descriptions.Each country had its own byzantine regulations, and its own interests, to consider. The European Commission had to consult the European Union’s 27 member countries, especially tech powers like Germany, France, the Netherlands and Finland, on which products could be cut off. Officials debated whether to crack down on the Russian oil industry, at a time of soaring gas prices and inflation.As Russia’s neighbors, the Europeans wanted to ensure that Russia still had access to certain goods for public safety, like nuclear reactor components to avoid a Chernobyl-style meltdown. At least one country insisted that auto exports to Russia should continue, a senior administration official said.The breakthrough came when American officials offered a compromise. The Biden administration planned to issue a rule that would bar companies anywhere around the world from exporting certain products to Russia if they were made using American technology. But those measures would not apply in countries that joined the United States and Europe in issuing their own technological restrictions on Russia.In an interview, Mr. Borman said that American allies had historically been concerned with the extraterritorial reach of U.S. export controls, and that the exclusions for countries that imposed their own rules “was really the key piece.”The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Dollars or Rubles? Russian Debt Payments Are Due, and Uncertain.

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    Citing sanctions, the Russian government warned it might pay foreign debt obligations in rubles. Credit rating agencies say a default is imminent. Russia is teetering on the edge of a possible sovereign debt default, and the first sign could come as soon as Wednesday.The Russian government owes about $40 billion in debt denominated in U.S. dollars and euros, and half of those bonds are owned by foreign investors. And Russian corporations have racked up approximately $100 billion in foreign currency debt, JPMorgan estimates.On Wednesday, $117 million in interest payments on dollar-denominated government debt are due.But Russia is increasingly isolated from global financial markets, and investors are losing hope that they will see their money. As the government strives to protect what’s left of its access to foreign currency, it has suggested it would pay its dollar- or euro-denominated debt obligations in rubles instead. That has prompted credit rating agencies to warn of an imminent default.The Russian currency has lost nearly 40 percent of its value against the U.S. dollar in the past month. Even if the payments were made, economic sanctions would make it difficult for Western lenders to access the rubles if they are in Russian bank accounts.“It is not that Russia doesn’t have money,” Kristalina Georgieva, managing director of the International Monetary Fund, told reporters last week. The problem is, Russia can’t use a lot of its international currency reserves, she said, because they have been frozen by sanctions. “I’m not going to speculate what may or may not happen, but just to say that no more we talk about Russian default as an improbable event.”Last week, the chief economist of the World Bank said Russia and Belarus were squarely in “default territory,” and Fitch Ratings said a default was imminent because sanctions had diminished Russia’s willingness to repay its foreign debts.Russia last defaulted on its debt in 1998, when a currency crisis led it to default on ruble-denominated debt and temporarily ban foreign debt payments. The crisis shocked the financial world, leading to the collapse of the U.S. hedge fund Long-Term Capital Management, which required Federal Reserve intervention and a multibillion-dollar bailout. If Russia failed to make payments on its foreign currency debt, it would be its first such default since the 1917 Russian Revolution.Foreign investor interest in Russian assets fell in 2014 when sanctions were imposed after the country annexed Crimea, and never fully recovered before more sanctions were imposed by Washington in 2019. But holdings aren’t negligible. Russian government bonds were considered investment grade as recently as a few weeks ago, and were included in indexes used to benchmark other funds. JPMorgan estimates that international investors own 22 percent of Russian companies’ foreign currency debt.BlackRock, the world’s largest asset manager, has already incurred losses on Russian assets and equities.Jeenah Moon/BloombergFunds managed by BlackRock, the world’s largest asset manager, have incurred $17 billion in losses on Russian assets, including equities, in recent weeks, according to the firm. The loss in value has a number of causes, including investors selling their holdings.But so far, regulators have said the risk to global banking systems from a Russian default wouldn’t be systemic because of the limited direct exposure to Russian assets. The larger ramifications from the war in Ukraine and Russia’s economic isolation are from higher energy and food prices.Still, financial companies have been scrambling to assess their exposure, according to Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions.“I’m seeing a lot of clients that had exposure to the Russian market wondering what type of default scenarios might be coming up,” said Mr. Tannebaum, who is also a former Treasury Department official. In the case of a default, “those bonds become worthless, for lack of a better term,” he said.On Monday, Russia’s finance minister, Anton Siluanov, accused the countries that have frozen the country’s internationally held currency reserves of trying to create an “artificial default.” The government has the money to meet its debt obligations, he said, but sanctions were hampering its ability to pay. Mr. Siluanov had also said over the weekend that the country had lost access to about $300 billion of its $640 billion currency reserves.The government insists investors will be paid. The finance ministry said on Monday it would send instructions to banks to issue the payment due on dollar- or euro-denominated bonds in dollars or euros, but if the banks don’t execute the order then it will be recalled and payment will be made in rubles instead. The statement also said that the payments could be made in rubles and then converted to another currency only when the country’s gold and foreign exchange reserves are unfrozen.Russia’s finance minister, Anton Siluanov, accused the countries that have frozen the country’s internationally held currency reserves of trying to create an “artificial default.”Alberto Pizzoli/Agence France-Presse — Getty Images“In any case, obligations to our investors will be met. And the ability to receive the funds in foreign currency will depend on the imposed restrictions,” Mr. Siluanov said.But the statement doesn’t provide a clear vision of what might happen on Wednesday. American sanctions allow for the receipt of payments of debt obligations until late May, and so the reasoning behind the Russian finance ministry’s claim that banks might refuse the payments is unclear. The payments due on Wednesday also have a 30-day grace period, so a default wouldn’t technically happen until mid-April. But Russia has already blocked interest payments on ruble-denominated bonds to nonresidents, a sign of its hesitancy to transfer funds abroad.While the Russian finance ministry said it could meet its obligations by paying in rubles, others disagreed.“In order to avoid a default, the only way that Russia can really navigate this is to send the full payment in dollars,” said Trang Nguyen, an emerging markets strategist at JPMorgan.Some Russian bonds issued in recent years do have provisions that allow for repayment in other currencies, including the ruble, if Russia can’t make payments in dollars for reasons “beyond its control.” The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Russia Asked China for Military and Economic Aid for Ukraine War, U.S. Officials Say

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    WASHINGTON — Russia asked China to give it military equipment and support for the war in Ukraine after President Vladimir V. Putin began a full-scale invasion last month, according to U.S. officials.Russia has also asked China for additional economic assistance, to help counteract the battering its economy has taken from broad sanctions imposed by the United States and European and Asian nations, according to an official.American officials, determined to keep secret their means of collecting the intelligence on Russia’s requests, declined to describe further the kind of military weapons or aid that Moscow is seeking. The officials also declined to discuss any reaction by China to the requests.President Xi Jinping of China has strengthened a partnership with Mr. Putin and has stood by him as Russia has stepped up its military campaign in Ukraine, destroying cities and killing hundreds or thousands of civilians. American officials are watching China closely to see whether it will act on any requests of aid from Russia. Jake Sullivan, the White House national security adviser, is scheduled to meet on Monday in Rome with Yang Jiechi, a member of the Chinese Communist Party’s elite Politburo and director of the party’s Central Foreign Affairs Commission.Mr. Sullivan intends to warn Mr. Yang about any future Chinese efforts to bolster Russia in its war or undercut Ukraine, the United States and their partners.“We are communicating directly, privately to Beijing that there will absolutely be consequences for large-scale sanctions evasion efforts or support to Russia to backfill them,” Mr. Sullivan said on CNN on Sunday.“We will not allow that to go forward and allow there to be a lifeline to Russia from these economic sanctions from any country, anywhere in the world,” he said.Mr. Sullivan did not make any explicit mention of potential military support from China, but other U.S. officials spoke about the request from Russia on the condition of anonymity because of the sensitivity of diplomatic and intelligence matters.Liu Pengyu, a spokesman for the Chinese Embassy in Washington, said he had never heard of the request from Russia. “The current situation in Ukraine is indeed disconcerting,” he said, adding that Beijing wants to see a peaceful settlement. “The high priority now is to prevent the tense situation from escalating or even getting out of control.”The Biden administration is seeking to lay out for China the consequences of its alignment with Russia and penalties it will incur if it continues or increases its support. Some U.S. officials argue it might be possible to dissuade Beijing from ramping up its assistance to Moscow. Chinese leaders may be content to offer rhetorical support for Moscow and may not want to further enmesh themselves with Mr. Putin by providing military support for the war, those U.S. officials say.Mr. Sullivan said China “was aware before the invasion took place that Vladimir Putin was planning something,” but added that the Chinese might not have known the full extent of the Russian leader’s plans. “It’s very possible that Putin lied to them, the same way he lied to Europeans and others,” he said.Mr. Xi has met with Mr. Putin 38 times as national leaders, more than with any other head of state, and the two share a drive to weaken American power.Traditionally, China has bought military equipment from Russia rather than the other way around. Russia has increased its sales of weaponry to China in recent years. But China has advanced missile and drone capabilities that Russia could use in its Ukraine campaign.Although Russia on Sunday launched a missile barrage on a military training ground in western Ukraine that killed at least 35 people, there has been some evidence that Russian missile supplies have been running low, according to independent analysts.Last week, the White House criticized China for helping spread Kremlin disinformation about the United States and Ukraine. In recent days, Chinese diplomats, state media organizations and government agencies have used a range of platforms and official social media accounts to amplify a conspiracy theory that says the Pentagon has been financing biological and chemical weapons labs in Ukraine. Right-wing political figures in the United States have also promoted the theory.On Friday, Russia called a United Nations Security Council meeting to present its claims about the labs, and the Chinese ambassador to the U.N., Zhang Jun, supported his Russian counterpart.“Now that Russia has made these false claims, and China has seemingly endorsed this propaganda, we should all be on the lookout for Russia to possibly use chemical or biological weapons in Ukraine, or to create a false flag operation using them,” Jen Psaki, the White House press secretary, wrote on Twitter last Wednesday.China is also involved in the Iran nuclear negotiations, which have stalled because of new demands from Russia on relief from the sanctions imposed by Western nations in response to the Ukraine war.American officials are trying to determine to what degree China would support Russia’s position in those talks. Before Russia raised the requests, officials from the nations involved had been close to clinching a return to a version of the Obama-era nuclear limits agreement from which President Donald J. Trump withdrew. Mr. Sullivan might bring up Iran with Mr. Yang on Monday.Current and former U.S. officials say the Rome meeting is important, given the lives at stake in the Ukraine war and the possibility of Russia and China presenting a geopolitical united front against the United States and its allies in the years ahead.“This meeting is critical and possibly a defining moment in the relationship,” said Evan Medeiros, a Georgetown University professor who was a senior Asia director on the National Security Council during the Obama administration.“I think what the U.S. is probably going to do is lay out the costs and consequences of China’s complicity and possible enabling of Russia’s invasion,” he said. “I don’t think anyone in the administration has illusions that the U.S. can pull China away from Russia.”Some U.S. officials are looking for ways to compel Mr. Xi to distance himself from Mr. Putin on the war. Others see Mr. Xi as a lost cause and prefer to treat China and Russia as committed partners, hoping that might galvanize policies and coordination among Asian and European allies to contain them both.Chinese officials have consistently voiced sympathy for Russia during the Ukraine war by reiterating Mr. Putin’s criticism of NATO and blaming the United States for starting the conflict. They have refrained from any mention of a Russian “war” or “invasion,” even as they express general concern for the humanitarian crisis.They mention support for “sovereignty and territorial integrity,” a common catchphrase in Chinese diplomacy, but do not say explicitly which nation’s sovereignty they support — meaning the phrase could be interpreted as backing for Ukraine or an endorsement of Mr. Putin’s claims to restoring the territory of imperial Russia.Russia-Ukraine War: Key Things to KnowCard 1 of 3Expanding the war. More