Embargoes and Sanctions

More stories

  • 163 Shares119 Views

    in Economy

    Biden Urges Americans to Blame Rising Prices on Putin. Many Do, for Now.

    by

    News that inflation has hit a 40-year high is another blunt reminder of just how much the president is asking voters to sacrifice in an election year.WASHINGTON — The price of gasoline has risen every day since Russia invaded Ukraine. Record-high inflation in the United States is causing sticker shock. And now, President Biden is blaming the pinch on Vladimir V. Putin, the Russian president.“There will be costs at home as we impose crippling sanctions in response to Putin’s unprovoked war,” Mr. Biden said in a statement on Thursday.The president is betting that Americans are willing to endure the financial pain that comes from waging an economic war with Russia. But Thursday’s news that inflation has hit a 40-year high is another blunt reminder of just how much he is asking voters to sacrifice in an election year.With the midterm elections eight months away, the urgent political question for Mr. Biden is whether the American people are prepared to go along with blaming the Russians, and not him, for rising costs. Experts have said that prices have risen over the past year primarily because strong demand, stoked in part by government relief spending, outstripped pandemic-disrupted supply. Russia’s invasion of Ukraine is just beginning to compound the problem.“It’s certainly a challenge, but it’s not one that we really have a choice about making,” Josh Schwerin, a Democratic strategist, said about imposing financial penalties on Russia. “There’s broad support for standing up to Putin and putting these sanctions in place, including those that will increase the cost of gas.”Mr. Biden’s approval ratings have been pulled down for months by frustration among many Americans about inflation and the pandemic. But recent surveys of voter attitudes suggest that many Democrats and Republicans support the administration’s sanctions on Russia, even if the penalties are bad for their pocketbooks.In an Economist/YouGov poll released this week, 66 percent of Americans said they approved of sanctions aimed at punishing Russia for its invasion. In a Wall Street Journal survey, 79 percent of voters supported a ban on Russian oil even if it meant that energy prices would rise as a result.Those findings are good news for Mr. Biden, who has been the subject of Republican attacks for failing to keep inflation in check. Republicans have blamed him for the rise in gas prices even as they supported his decision to impose a ban on Russian oil. Officials familiar with his decision said Mr. Biden had struggled for days over whether to cut off Russian oil amid fears of accelerating the already rapid rise in the price of gasoline.Ronna McDaniel, the chairwoman of the Republican National Committee, accused the Biden administration on Thursday of refusing to take responsibility for rising costs.“Prices continue to skyrocket under Biden and Democrats’ reckless policies,” Ms. McDaniel said in a statement. “Biden’s attempt to deflect blame is an insult to every American and small-business owner struggling to afford the cost of everyday goods.”Jen Psaki, the White House press secretary, told reporters on Thursday that there was “no question that inflation may be higher for the next few months than it would have been” without the Russian invasion of Ukraine, and that the administration’s focus would be to mitigate the long-term effects of rising costs.Democratic strategists pointed out that much of the criticism of Mr. Biden from Republicans is that he has not done even more to confront Russia. The president has repeatedly said he is unwilling to send American troops into Ukraine, and the United States declined this week to take fighter jets from Poland and station them at an American air base for eventual use in Ukraine.Each decision Mr. Biden is making, the strategists from his party argue, is rooted in strategic decision making, not political calculation.Russia-Ukraine War: Key Things to KnowCard 1 of 4On the ground. More

  • 113 Shares99 Views

    in Economy

    IMF Warns Ukraine-Russia War Will Likely Slow Global Growth

    by

    The war in Ukraine and the associated sanctions that countries around the world have imposed on Russia are likely to cause a downgrade of the International Monetary Fund’s global economic growth forecast, Kristalina Georgieva, the I.M.F.’s managing director, said on Thursday.The Ukraine crisis is another shock to a world economy that was just emerging from the coronavirus pandemic, and it has been compounding global supply chain disruptions and inflation headwinds that have been cause for concern. The full impact on the world economy remains uncertain, I.M.F. officials said, and will depend on the outcome of the war and how long sanctions remain.“We just got through a crisis like no other with the pandemic, and we are now in an even more shocking territory,” Ms. Georgieva told reporters. “The unthinkable happened — we have a war in Europe.”In January, the I.M.F. reduced its estimated global growth rate for 2022 to 4.4 percent, from the 4.9 percent it had projected last year, as a result of slowdowns in the United States and China.Ms. Georgieva said the most significant threat to the world economy was greater inflation coming from higher commodity prices as countries shifted consumption away from Russian oil and gas. This, in turn, could eat into consumer spending. Worsening financial conditions and business confidence also have the potential to weigh on growth.“The surging prices for energy and other commodities — corn, metals, inputs for fertilizers, semiconductors — they are coming, in many countries, on top of already high inflation and are causing grave concern in so many places around the world,” Ms. Georgieva said.The I.M.F. is working to develop a plan to provide more assistance for Ukraine’s eventual rebuilding effort, but said it was too soon to know the extent of the country’s needs. This week, the fund’s executive board approved $1.4 billion in emergency financing.Ukraine’s top economic adviser said earlier on Thursday that Russia had already destroyed $100 billion worth of the country’s assets.The fund is also assessing the impact of the sanctions on the economy of Russia. Much of its financial sector and its central bank has been blacklisted.“The Russian economy is contracting, and the recession in Russia is going to be deep,” Ms. Georgieva said. “That is already clear.”She said Russia was unlikely to have access to its emergency currency reserves because of sanctions.The I.M.F. has halted operations and programs in Russia. Ms. Georgieva said there had been no discussions about ending Russia’s membership in the fund. More

  • 138 Shares99 Views

    in Economy

    How a Ban Russian Oil Imports Could Affect the U.S. Economy

    by

    The ban on Russian oil imports announced by President Biden on Tuesday could have meaningful consequences for the U.S. economy, pushing prices at the gas pump higher when inflation is already rapid, although how long-lasting that impact might be remains uncertain.“We’re banning all imports of Russian oil and gas and energy,” Mr. Biden said, speaking at a White House briefing. He said the plan would target the “main artery” of the Russian economy. While he acknowledged that the move would likely push gas prices up, he blamed Russian aggression for that reality.The ban applies to imports of Russian oil, liquefied natural gas and coal. It also prohibits new U.S. investments in Russia’s energy sector. And it blocks Americans from financing or enabling foreign companies that are making investments to produce energy in Russia.Europe imports far more of its supply from Russia than the United States, but energy markets are global, and the mere threat of a ban has pushed commodity prices higher in recent days.“Things have been so volatile,” said Omair Sharif, founder of Inflation Insights, noting that it was difficult to tell how much of the rise in oil prices in recent days traces back to this specific ban. But the conflict in Ukraine is clearly pushing commodity gas prices higher — so much so that the national average gas price could rise to nearly $4.50 this month, he said, “assuming we don’t move any more.”While the oil and gas ban is almost sure to push inflation higher in the United States, economists have said that the scale of the economic consequences would depend in large part on how it was structured. For instance, it would likely make a big difference globally and in markets if Europeans also ban Russian oil and gas imports, and it is not yet clear whether or to what extent that will happen.A ban across many countries “would severely reduce and disrupt energy supply on a global scale and already high commodity prices would rise,” Caroline Bain, an economist at Capital Economics, wrote in a research note ahead of the announcement, estimating that the price of the global oil benchmark, Brent crude, would settle in at about $160 per barrel in that case.The Brent crude price jumped by about 6 percent to roughly $130 per barrel by the middle of the day Tuesday. By comparison, it was about $78 per barrel at the end of 2021.The 10 Largest Oil Producers in 2020

    Source: Energy Information AdministrationBy The New York TimesIt is not yet clear how many countries will adopt a similar ban: The White House signaled this week that the United States could act separately in blocking imports of Russian oil, noting that countries in Europe are more reliant on Russian energy, something Mr. Biden also alluded to on Tuesday.“Many of our European allies and partners may not be in a position to join us,” he said, but added that allies “remain united in our purpose” to inflict pain on Russia’s war effort. That includes efforts by the European Union to lessen its dependence on Russian energy.Britain indicated on Tuesday that it would take its own steps to ban imports of Russian energy products. Kwasi Kwarteng, the country’s business and energy secretary, said that it would phase out imports of Russian oil and oil products by the end of 2022.Other European countries are under increasing pressure to follow suit.“Everything’s on the table,” Franck Riester, the French minister for foreign trade, told the franceinfo radio station on Monday, adding that France had to look at potential bans on oil and gas imports from Russia with regard to “consequences in terms of pressure on Russia and in terms of economic, financial and social impacts in Europe.”The office of President Emmanuel Macron of France said on Tuesday evening that the country had to coordinate with the European Union before taking any further steps, but acknowledged Europe’s need to reduce its reliance on Russia.“The United States is not dependent on Russian oil and gas, but the European partners are,” Mr. Macron’s office said in a statement. “We have a long-term policy of getting rid of the dependence on Russian oil and gas, but in the immediate future we need to discuss this with our European partners.”While Italy is very dependent on Russian gas, the nation’s government has said that if the European Union decided to cut off its consumption of Russian gas and oil, Italy would not oppose the effort.The direct U.S. economic impact from the loss of Russian oil is likely to be notable, though less severe than what would happen in Europe. According to the International Energy Agency, the United States imported less than 700,000 barrels of oil per day from Russia in 2021. That represents less than 10 percent of what the United States imports globally.Higher global oil and gas commodity prices and rising prices at the pump will add to the inflationary pain that is already dogging consumers. Prices are climbing at the fastest pace in 40 years, and data this week is expected to show that the annual increase climbed higher in February.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

  • 138 Shares149 Views

    in Economy

    Biden Bans Oil Imports From Russia, Warning Gas Prices Will Rise

    by

    Officials said President Biden had struggled for days over the move amid deep concerns about accelerating the already rapid rise in the price of gasoline.WASHINGTON — President Biden on Tuesday banned imports of Russian oil, gas and coal in response to what he called President Vladimir V. Putin’s “vicious war of choice” in Ukraine, but warned Americans that the decision to inflict economic pain on Russia would inevitably mean higher gas prices at home.“Defending freedom is going to cost,” Mr. Biden said in televised remarks announcing the ban at the White House.The president’s move immediately shut off a relatively small flow of oil into the United States, but it was quickly followed by a British pledge to phase out imports of Russian oil by the end of the year and a declaration from the European Commission — the executive arm of the European Union, which is heavily dependent on Russian oil and gas — to make itself independent of that supply in the coming years.The impact of the decisions quickly rippled across the global energy market amid fears that the supply of oil would shrink. In the United States, the national average price of a gallon of regular gasoline, which had already surged in recent weeks, reached $4.173, not adjusted for inflation, a new high and an average increase of about 72 cents from only a month ago, according to AAA.“If we do not respond to Putin’s assault on global peace and stability today, the cost of freedom and to the American people will be even greater tomorrow,” Mr. Biden said.He vowed to “do everything I can to minimize Putin’s price hike here at home.”Under intense, bipartisan pressure from lawmakers to deny Russia any more oil revenue from Americans, Mr. Biden acted without the unity among allies that has characterized most of the response to Russia’s aggression during the past several months.The moves by Britain and the E.U. fell short of Mr. Biden’s ban. Franck Riester, the French minister for foreign trade, told the Franceinfo radio station on Monday that “everything’s on the table,” but that officials would need to consider “consequences” from an energy ban. In Italy, which imports more than 40 percent of its energy as Russian gas, Prime Minister Mario Draghi has said the overdependence on Russian gas is a strategic weakness for the country.Even as Mr. Biden spoke, describing his ban as “another powerful blow to Putin’s war machine,” a new wave of major corporations across the world began shutting down their operations in Russia on Tuesday.Shell, Europe’s largest oil company, said it would begin withdrawing from its involvement “in all Russian hydrocarbons,” including an immediate halt to all spot purchases of Russian crude and the shuttering of its service stations in the country. McDonald’s, Coca-Cola, Pepsico and Starbucks announced that they would temporarily close all restaurants and pause all operations in Russia in response to the invasion in Ukraine. Amazon stopped letting customers in Russia and Belarus open new cloud computing accounts.An oil refinery in Omsk, Russia. About 12 percent of the world’s oil and 17 percent of its natural gas comes from Russia, according to estimates from J.P. Morgan.Alexey Malgavko/ReutersOfficials said Mr. Biden had struggled for days over whether to cut off Russian oil amid fears of accelerating the already rapid rise in the price of gasoline. It is a potent political issue for Americans in an election year and a test of how much voters are willing to sacrifice in defense of Ukraine.Even into the weekend, as a bipartisan group of lawmakers in the House tried to finalize legislation to impose a ban on Russian oil, the White House expressed deep concerns, according to officials monitoring the discussions, who said the administration appeared wary of letting Congress take the lead on enacting a ban.A vote on the House bill, which is supported by Speaker Nancy Pelosi of California, was delayed late Tuesday.The president and his aides have discussed a series of additional moves to blunt the impact of the ban, including additional releases from strategic oil reserves. Last week, the United States committed to releasing 30 million barrels of oil, joining 30 other nations for a total release of 60 million barrels.Administration officials have also held diplomatic conversations with other oil-producing nations, including Venezuela, about increasing the flow of oil to keep prices stable. Jen Psaki, the White House press secretary, on Monday confirmed discussions with Venezuela about “energy security” and other issues, but declined to elaborate.Any barrels the United States imports to replace Russian oil will come from a global market that is already stretched. Unless and until Russia finds alternative buyers, the constraint on available supplies is likely to keep prices high.U.S. consumers are already feeling the squeeze. In California, prices for some types of gas has hovered around $6 in recent days; on Tuesday the state average was well over $5.Republicans on Tuesday largely backed Mr. Biden’s decision to cut off Russian oil, giving the president a rare moment of bipartisan support. But even as they did so, many Republicans once again seized on high prices at the pump to criticize him and his party.“Democrats want to blame surging prices on Russia,” Representative Kevin McCarthy of California, the House Republican leader, said on Tuesday. “But the truth is, their out-of-touch policies are why we are here in the first place.”In his remarks, Mr. Biden cast the decision as a moral one, aimed at further crippling Mr. Putin’s economy as Russian forces continued their brutal bombardment of civilians in several of Ukraine’s cities and suburbs after two grueling weeks of war in Europe.“Ukrainian people have inspired the world and I mean that in the literal sense,” Mr. Biden said. “They’ve inspired the world with their bravery, their patriotism, their defiant determination to live free. Putin’s war has caused enormous suffering and needless loss of life of women, children, and everyone in Ukraine.”He added: “Putin seems determined to continue on his murderous path, no matter the cost.”Battles continued to rage across Ukraine on Tuesday as humanitarian officials reported that two million refugees have fled the country seeking safety. But casualties increased as evacuations though supposed “green corridors” continued to come under fire.About 2,000 civilians were able to escape Irpin, a suburb just northwest of Kyiv, Ukraine’s capital, which has spent days without water, power and heat because of the heavy fighting in the area. In the war-battered city of Sumy, east of Kyiv, one humanitarian corridor lasted long enough to allow hundreds of civilians to escape in a convoy of buses led by the Red Cross.Civilians were evacuated from Irpin, Ukraine on Tuesday.Lynsey Addario for The New York TimesBut hundreds of thousands of Ukrainians remain trapped in the besieged southern city of Mariupol.The Ukrainian military claimed to have shot down three Russian fighter jets and a cruise missile early Tuesday, an assertion that appeared to be backed up by several loud explosions over Kyiv, a potential sign that Ukraine’s air defense systems and air force are still functioning.President Volodymyr Zelensky of Ukraine taunted Mr. Putin on Tuesday with a video showing him in his office in Kyiv and saying: “I’m not hiding. And I’m not afraid of anyone.” Mr. Zelensky also spoke by video link to a packed meeting of Britain’s Parliament.The Pentagon on Tuesday rejected an offer by Poland to send its MiG-29 fighter planes to a U.S. air base in Germany to aid the Ukrainians, saying that for such jets to depart a U.S./NATO base “to fly into airspace that is contested with Russia over Ukraine raises serious concerns for the entire NATO alliance.”Separately, the Pentagon said it was sending two Patriot anti-missile batteries to Poland to protect U.S., Polish and other allied troops there, reflecting an increasing fear in Warsaw and in Washington that Russian missiles fired in neighboring Ukraine could end up in Poland, whether on purpose or by accident.White House officials said the president signed an executive order on Tuesday that prohibits anyone in the United States from importing “Russian crude oil and certain petroleum products, liquefied natural gas and coal.” It also bans new U.S. investment directly in Russia’s energy sector or in foreign companies that are investing in energy production in Russia, officials said.In announcing his decision, Mr. Biden acknowledged that some European countries, including Germany and France, would most likely not follow suit because they rely much more heavily on energy from Russia.“A united response to Putin’s aggression has been my overriding focus to keep all of NATO and all of the E.U. and our allies totally united,” Mr. Biden said. “We’re moving forward with this ban understanding that many of our European allies and partners may not be in a position to join us.”Russia-Ukraine War: Key Things to KnowCard 1 of 4Russian oil imports. More

  • 163 Shares169 Views

    in Economy

    With Sanctions, U.S. and Europe Aim to Punish Putin and Fuel Russian Unrest

    by

    The Biden administration and European officials are crushing the Russian economy and stirring mass anxiety to pressure President Vladimir V. Putin to end his war in Ukraine.WASHINGTON — As they impose historic sanctions on Russia, the Biden administration and European governments have set new goals: devastate the Russian economy as punishment for the world to witness, and create domestic pressure on President Vladimir V. Putin to halt his war in Ukraine, current and former U.S. officials say.The harsh penalties — which have hammered the ruble, shut down Russia’s stock market and prompted bank runs — contradict previous declarations by U.S. officials that they would refrain from inflicting pain on ordinary Russians. “We target them carefully to avoid even the appearance of targeting the average Russian civilian,” Daleep Singh, the deputy national security adviser for international economics, said at a White House briefing last month.The escalation in sanctions this week has occurred much faster than many officials had anticipated, largely because European leaders have embraced the most aggressive measures proposed by Washington, U.S. officials said.With Russia’s economy crumbling, major companies — Apple, Boeing and Shell among them — are suspending or exiting operations in the country. The Biden administration said on Thursday that it would not offer sanctions relief amid Mr. Putin’s increasingly brutal offensive.The thinking among some U.S. and European officials is that Mr. Putin might stop the war if enough Russians protest in the streets and enough tycoons turn on him. Other U.S. officials emphasize the goals of punishment and future deterrence, saying that the carcass of the Russian economy will serve as a visible consequence of Mr. Putin’s actions and a warning for other aggressors.But Russia’s $1.5 trillion economy is the world’s 11th largest. No countries have tried pushing an economy of that size to the brink of collapse, with unknown consequences for the world. And the actions of the United States and Europe could pave the way for a new type of great-power conflict in the future.The moves have also ignited questions in Washington and in European capitals over whether cascading events in Russia could lead to “regime change,” or rulership collapse, which President Biden and European leaders are careful to avoid mentioning.“This isn’t the Russian people’s war,” Secretary of State Antony J. Blinken said in a news conference on Wednesday. But, he added, “the Russian people will suffer the consequences of their leaders’ choices.”“The economic costs that we’ve been forced to impose on Russia are not aimed at you,” he said. “They are aimed at compelling your government to stop its actions, to stop its aggression.”The harshest sanctions by far are ones that prevent the Central Bank of Russia from tapping into much of its $643 billion in foreign currency reserves, which has led to a steep drop in the value of the ruble. Panic has set in across Russia. Citizens are scrambling to withdraw money from banks, preferably in dollars, and some are fleeing the country.The United States and Europe also announced new sanctions this week against oligarchs with close ties to Mr. Putin. Officials are moving to seize their houses, yachts and private jets around the world. French officials on Thursday snatched the superyacht of Igor Sechin, the chief executive of Rosneft, the Russian state oil giant.“The sanctions have turned out to be quite unprecedented,” said Maria Snegovaya, a visiting scholar at George Washington University who has studied U.S. sanctions on Russia. “Everybody in Russia is horrified. They’re trying to think of the best way to preserve their money.”The French finance minister, Bruno Le Maire, has used some of the harshest language yet to articulate the mission, telling a radio program on Tuesday that Western nations were “waging an all-out economic and financial war on Russia” to “cause the collapse of the Russian economy.” He later said he regretted his words.Evidence of shock and anger among Russians — mostly anecdotal in a country with restricted speech and little public opinion polling — has raised the specter of mass political dissent, which, if strong enough, could threaten Mr. Putin’s grip on power.Senator Lindsey Graham, Republican of South Carolina, said on Fox News, “The best way for this to end is having Eliot Ness or Wyatt Earp in Russia, the Russian Spring, so to speak, where people rise up and take him down.”Mr. Graham added: “So I’m hoping somebody in Russia will understand that he’s destroying Russia, and you need to take this guy out by any means possible,” reiterating his Twitter post on Thursday calling for an assassination of Mr. Putin.A spokesman for Prime Minister Boris Johnson of Britain said on Monday that the sanctions were “intended to bring down the Putin regime.” Mr. Johnson’s office quickly corrected the statement, saying that it did not reflect his government’s view and that the goal of the measures was to stop Russia’s assault on Ukraine.Michael A. McFaul, a former U.S. ambassador to Moscow, called the talk of Mr. Putin’s overthrow unhelpful, emphasizing that the sanctions should be tailored and described as a means of stopping the invasion. “The objective should be to end the war,” he said.But while the Biden administration has said it is still open to diplomacy with Russia, it has not offered to reverse any of the sanctions in exchange for de-escalation.“Right in this moment, they’re marching toward Kyiv with a convoy and continuing to take reportedly barbaric steps against the people of Ukraine,” Jen Psaki, the White House press secretary, said on Thursday. “So, no, now is not the moment where we are offering options for reducing sanctions.”But in an interview on Friday with the Russian news agency TASS, Victoria J. Nuland, the U.S. under secretary of state for political affairs, suggested terms for possible sanctions relief, albeit maximalist ones. She said that Mr. Putin had to end the war, help to “rebuild” Ukraine and recognize its sovereignty, borders and right to exist. Those are conditions that the Russian leader is highly unlikely to consider.Families in Kyiv, Ukraine, waited for a train west on Friday.Lynsey Addario for The New York TimesAll the while, Biden officials have sought to assure the Russian people that they take no pleasure in their suffering. The United States and Europe have tried to spare Russians some of the effects, including allowing sales of consumer technology to Russia despite sweeping new limits on exports.They have also refrained from imposing energy sanctions because of Europe’s dependence on Russian gas and the risk of higher oil prices.Even so, Mr. Putin and his aides are doing their best to find some political advantage in the sanctions, arguing that the real goal for the West has always been to weaken Russia. As he launched his invasion last week, Mr. Putin said the United States would have sanctioned his country “no matter what.”Russia-Ukraine War: Key Things to KnowCard 1 of 4Nuclear plant seized. More

  • 113 Shares149 Views

    in Economy

    Economic Ties Among Nations Spur Peace. Or Do They?

    by

    The Russian invasion of Ukraine strains the long-held idea that shared interests around business and commerce can deflect military conflict.Russia’s war in Ukraine is not only reshaping the strategic and political order in Europe, it is also upending long-held assumptions about the intricate connections that are a signature of the global economy.Millions of times a day, far-flung exchanges of money and goods crisscross land borders and oceans, creating enormous wealth, however unequally distributed. But those connections have also exposed economies to financial upheaval and crippling shortages when the flows are interrupted.The snarled supply lines and shortfalls caused by the pandemic created a wide awareness of these vulnerabilities. Now, the invasion has delivered a bracing new spur to governments in Europe and elsewhere to reassess how to balance the desire for efficiency and growth with the need for self-sufficiency and national security.And it is calling into question a tenet of liberal capitalism — that shared economic interests help prevent military conflicts.It is an idea that stretches back over the centuries and has been endorsed by romantic idealists and steely realists. The philosophers John Stuart Mill and Immanuel Kant wrote about it in treatises. The British politicians Richard Cobden and John Bright invoked it in the 19th century to repeal the protectionist Corn Laws, the tariffs and restrictions imposed on imported grains that shielded landowners from competition and stifled free trade.Later, Norman Angell was awarded the Nobel Peace Prize for writing that world leaders were under “A Great Illusion” that armed conflict and conquest would bring greater wealth. During the Cold War, it was an element of the rationale for détente with the Soviet Union — to, as Henry Kissinger said, “create links that will provide incentive for moderation.”German Chancellor Olaf Scholz in Moscow last month. Since the fall of the Soviet Union, policies by Germany and other European countries have been partly shaped by the idea that economic ties with Russia could deflect conflict.Pool photo by Maxim ShemetovSince the disintegration of the Soviet Union three decades ago, the idea that economic ties can help prevent conflict has partly guided the policies toward Russia by Germany, Italy and several other European nations.Today, Russia is the world’s largest exporter of oil and wheat. The European Union was its biggest trading partner, receiving 40 percent of its natural gas, 25 percent of its oil and a hefty portion of its coal from Russia. Russia also supplies other countries with raw materials like palladium, titanium, neon and aluminum that are used in everything from semiconductors to car manufacturing.Just last summer, Russian, British, French and German gas companies completed a decade-long, $11 billion project to build a direct pipeline, Nord Stream 2, that was awaiting approval from a German regulator. But Germany halted certification of the pipeline after Russia recognized two separatist regions in Ukraine.From the start, part of Germany’s argument for the pipeline — the second to connect Russia and Germany — was that it would more closely align Russia’s interests with Europe’s. Germany also built its climate policy around Russian oil and gas, assuming it would provide energy as Germany developed more renewable sources and closed its nuclear power plants.Benefits ran both ways. Globalization rescued Russia from a financial meltdown and staggering inflation in 1998 — and ultimately smoothed the way for the rise to power of Vladimir V. Putin, Russia’s president. Money earned from energy exports accounted for a quarter of Russia’s gross domestic product last year.The Nord Stream 2 plant in Germany. The pipeline had been seen as a way to align Russia’s interests with those of Germany. Now it has been shelved.Michael Sohn/Associated PressCritics of Nord Stream 2, particularly in the United States and Eastern Europe, warned that increasing reliance on Russian energy would give it too much leverage, a point that President Ronald Reagan made 40 years earlier to block a previous pipeline. Europeans were still under an illusion, the argument went, only this time it was that economic ties would prevent baldfaced aggression.Still, more recently, those economic ties contributed to skepticism that Russia would launch an all-out attack on Ukraine in defiance of its major trading partners.In the weeks leading up to the invasion, many European leaders demurred from joining what they viewed as the United States’ overhyped warnings. One by one, French President Emmanuel Macron, German Chancellor Olaf Scholz and Italian Prime Minister Mario Draghi talked or met with Mr. Putin, hopeful that a diplomatic settlement would prevail.There are good reasons for the European Union to believe that economic ties would bind potential combatants more closely together, said Richard Haass, president of the Council on Foreign Relations. The proof was the European Union itself. The organization’s roots go back to the creation after World War II of the European Coal and Steel Community, a pact among six nations meant to avert conflict by pooling control of these two essential commodities.“The idea was that if you knit together the French and German economies, they wouldn’t be able to go to war,” Mr. Haass said. The aim was to prevent World War III.Scholars have attempted to prove that the theory worked in the real world — studying tens of thousands of trade relations and military conflicts over several decades — and have come to different conclusions.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

  • 100 Shares189 Views

    in Economy

    Western Sanctions Show Russian Vulnerability in Global Economy

    by

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

  • 113 Shares149 Views

    in Economy

    Russian Oil Finds Few Buyers Even at Deep Discounts

    by

    Some European buyers, shippers, banks and insurers have grown leery of doing business with the country in recent days.HOUSTON — The United States and the European Union have been unwilling to put sanctions on Russian energy exports in response to the country’s invasion of Ukraine. But some oil traders appear to have concluded that buying oil from Russia is just not worth the trouble.One of the three top oil producers in the world, after the United States and Saudi Arabia, Russia provides roughly 10 percent of the global supply. But in recent days traders and European refineries have greatly reduced their purchases of Russian oil. Some have stopped altogether.Buyers are pulling back because they or the shipping companies, banks and insurance companies they use are worried about running afoul of Western sanctions in place now or those that might come later, energy experts said. Others are worried that shipments could be hit by missiles, and some just don’t want to risk being seen as bankrolling the government of President Vladimir V. Putin.Russian exporters have been offering the country’s highest-quality oil at a discount of up to $20 a barrel in recent days but have found few buyers, analysts said. Buyers, in Europe in particular, have been switching to Middle Eastern oil, a decision that has helped drive the global oil price above $100 a barrel for the first time since 2014.“The enablers of oil exports — the banks, insurance companies, tanker companies and even multinational oil companies — have enacted what amounts to a de facto ban,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. Mr. Kloza said it could take weeks before it was clear how significantly Russia’s oil exports had fallen and whether the drop would be sustained, but “clearly the Russian contribution to world oil supply has been constricted.”On Tuesday, the International Energy Agency said its members, which include the United States and more than a dozen European nations, had agreed to release 60 million barrels of oil from their strategic reserves. The announcement had little impact on global oil prices, probably because the amount was modest, amounting to roughly three days of consumption by the United States. The White House and Energy Department signaled that more oil could be released later by describing the I.E.A. agreement as an “initial release.”Much of Russia’s oil is shipped out of Black Sea ports for use in Europe. Some shipping companies carrying oil and commercial goods are afraid that their vessels will be fired on. Congestion in sea lanes is interrupting the shipping of not only oil but also food. On Friday, an unidentified missile hit a Moldovan-flagged tanker carrying oil and diesel.“Russia’s flagship Urals blend was one of the first to break through the $100-per-barrel mark this year,” said Louise Dickson, senior oil market analyst at Rystad Energy, a research and consulting firm. “But the country’s incursion into Ukraine has now made it one of the most toxic barrels on the market.”As European refiners buy more oil from places like Saudi Arabia, Russian companies are increasingly trying to sell their crude to refineries in China and other Asian countries by offering them discounts.Most of Russia’s roughly five million barrels of daily oil exports go to Europe. About 700,000 barrels a day are consumed in the United States, roughly 4 percent of the U.S. market.Several Scandinavian refiners, including Neste Oyj of Finland and Preem of Sweden, have said they halted purchases of Russian oil.“Due to the current situation and uncertainty in the market, Neste has mostly replaced Russian crude oil with other crudes, such as North Sea oil,” said Theodore Rolfvondenbaumen, a Neste spokesman. As the company watches future sanctions and “potential countersanctions,” he said, it is preparing “for various options in procurement, production and logistics.”Energy experts say the international oil trade could be rejiggered in ways that are similar to what happened in 1956 when Britain, France and Israel attacked Egypt and closed the Suez Canal. For a time, oil tankers were rerouted around Africa. Similarly, over the next few months Russian oil once shipped to Europe could go to China.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More