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How Joe Manchin Left a Global Tax Deal in Limbo

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Treasury Secretary Janet L. Yellen’s signature achievement is in jeopardy if the United States cannot ratify the tax agreement that she brokered.WASHINGTON — In June, months after reluctantly signing on to a global tax agreement brokered by the United States, Ireland’s finance minister met privately with Treasury Secretary Janet L. Yellen, seeking reassurances that the Biden administration would hold up its end of the deal.Ms. Yellen assured the minister, Paschal Donohoe, that the administration would be able to secure enough votes in Congress to ensure that the United States was in compliance with the pact, which was aimed at cracking down on companies evading taxes by shifting jobs and profits around the world.It turns out that Ms. Yellen was overly optimistic. Late last week, Senator Joe Manchin III, Democrat of West Virginia, effectively scuttled the Biden administration’s tax agenda in Congress — at least for now — by saying he could not immediately support a climate, energy and tax package he had spent months negotiating with the Democratic leadership. He expressed deep misgivings about the international tax deal, which he had previously indicated he could support, saying it would put American companies at a disadvantage.“I said we’re not going to go down that path overseas right now because the rest of the countries won’t follow, and we’ll put all of our international companies in jeopardy, which harms the American economy,” Mr. Manchin told a West Virginia radio station on Friday. “So we took that off the table.”Mr. Manchin’s reversal, couched in the language used by Republican opponents of the deal, is a blow to Ms. Yellen, who spent months getting more than 130 countries on board. It is also a defeat for President Biden and Democratic leaders in the Senate, who pushed hard to raise tax rates on many multinational corporations in hopes of leading the world in an effort to stop companies from shifting jobs and income to minimize their tax bills.The agreement would have ushered in the most sweeping changes to global taxation in decades, including raising taxes on many large corporations and changing how technology companies are taxed. The two-pronged approach would entail countries enacting a 15 percent minimum tax so that companies pay a rate of at least that much on their global profits no matter where they set up shop. It would also allow governments to tax the world’s largest and most profitable companies based on where their goods and services were sold, not where their headquarters were.Failure to get agreement at home creates a mess both for the Biden administration and for multinational corporations. Many other countries are likely to press ahead to ratify the deal, but some may now be emboldened to hold out, fracturing the coalition and potentially opening the door for some countries to continue marketing themselves as corporate tax havens.For now, the situation will allow for the continued aggressive use of global tax avoidance strategies by companies like the pharmaceutical giant AbbVie. A Senate Finance Committee report this month found that the company made three-quarters of its sales to American customers in 2020, yet reported only 1 percent of its income in the United States for tax purposes — a move that allowed it to slash its effective tax rate to about half of the 21 percent American corporate income tax rate.Not changing international tax laws could also sow new uncertainty for large tech companies, like Google and Amazon, and other businesses that earn money from consumers in countries where they do not have many employees or physical offices. Part of the global agreement was meant to give those companies more certainty on which countries could tax them, and how much they would have to pay.America’s refusal to take part would be a significant setback for Ms. Yellen, whose role in getting the deal done was viewed as her signature diplomatic achievement. For months last year, she lobbied nations around the world, from Ireland to India, on the merits of the tax agreement, only to see her own political party decline to heed her calls to get on board.Treasury Secretary Janet L. Yellen and Finance Minister Paschal Donohoe of Ireland met in Washington last month.Andrew Harnik/Associated PressAfter Mr. Manchin’s comments, the Treasury Department said it was not giving up on the agreement.“The United States remains committed to finalizing a global minimum tax,” Michael Kikukawa, a Treasury spokesman, said in a statement. “It’s too important for our economic strength and competitiveness to not finalize this agreement, and we’ll continue to look at every avenue possible to get it done.”Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers, told reporters at the White House on Monday that Mr. Biden “remains fully committed” to participating in a global tax agreement.Understand What Happened to Biden’s Domestic AgendaCard 1 of 6‘Build Back Better.’ More

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    As Russia Chokes Ukraine’s Grain Exports, Romania Tries to Fill In

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    Stopping at the edge of a vast field of barley on his farm in Prundu, 30 miles outside Romania’s capital city of Bucharest, Catalin Corbea pinched off a spiky flowered head from a stalk, rolled it between his hands, and then popped a seed in his mouth and bit down.“Another 10 days to two weeks,” he said, explaining how much time was needed before the crop was ready for harvest.Mr. Corbea, a farmer for nearly three decades, has rarely been through a season like this one. The Russians’ bloody creep into Ukraine, a breadbasket for the world, has caused an upheaval in global grain markets. Coastal blockades have trapped millions of tons of wheat and corn inside Ukraine. With famine stalking Africa, the Middle East and elsewhere in Asia, a frenetic scramble for new suppliers and alternate shipping routes is underway.“Because of the war, there are opportunities for Romanian farmers this year,” Mr. Corbea said through a translator.The question is whether Romania will be able to take advantage of them by expanding its own agricultural sector while helping fill the food gap left by landlocked Ukraine.Catalin Corbea, in his trophy room showing stuffed animals from hunting expeditions, said the war in Ukraine had presented opportunities to Romanian farmers.Cristian Movila for The New York TimesIn many ways, Romania is well positioned. Its port in Constanta, on the western coast of the Black Sea, has provided a critical — although tiny — transit point for Ukrainian grain since the war began. Romania’s own farm output is dwarfed by Ukraine’s, but it is one of the largest grain exporters in the European Union. Last year, it sent 60 percent of its wheat abroad, mostly to Egypt and the rest of the Middle East. This year, the government has allocated 500 million euros ($527 million) to support farming and keep production up.Still, this Eastern European nation faces many challenges: Its farmers, while benefiting from higher prices, are dealing with spiraling costs of diesel, pesticides and fertilizer. Transportation infrastructure across the country and at its ports is neglected and outdated, slowing the transit of its own exports while also stymieing Romania’s efforts to help Ukraine do an end run around Russian blockades.Even before the war, though, the global food system was under stress. Covid-19 and related supply chain blockages had bumped up prices of fuel and fertilizer, while brutal dry spells and unseasonal floods had shrunk harvests.Since the war began, roughly two dozen countries, including India, have tried to bulk up their own food supplies by limiting exports, which in turn has exacerbated global shortages. This year, droughts in Europe, the United States, North Africa and the Horn of Africa have all taken additional tolls on harvests. In Italy, water has been rationed in the farm-producing Po Valley after river levels dropped enough to reveal a barge that had sunk in World War II.Rain was not as plentiful in Prundu as Mr. Corbea would have liked it to be, but the timing was opportune when it did come. He bent down and picked up a fistful of dark, moist soil and caressed it. “This is perfect land,” he said. “This is perfect land,” Mr. Corbea said after picking a handful of soil on his farm in Prundu.Cristian Movila for The New York TimesThunderstorms are in the forecast, but this morning, the seemingly endless bristles of barley flutter under a cloudless cerulean sky.The farm is a family affair, involving Mr. Corbea’s two sons and his brother. They farm 12,355 acres or so, growing rapeseed, corn, wheat, sunflowers and soy as well as barley. Across Romania, yields are not expected to match the record grain production of 29 million metric tons from 2021, but the crop outlook is still good, with plenty available to export.Mr. Corbea slips into the driver’s seat of a white Toyota Land Cruiser and drives through Prundu to visit the cornfields, which will be harvested in the fall. He has been mayor of this town of 3,500 for 14 years and waves to every passing car and pedestrian, including his mother, who is standing in front of her house as he cruises by. The trees and splashes of red-and-pink rose bushes that line every street were planted by and are cared for by Mr. Corbea and his workers.He said he employed 50 people and brought in €10 million a year in sales. In recent years, the farm has invested heavily in technology and irrigation.Amid rows of leafy green corn, a long center-pivot irrigation system is perched like a giant skeletal pterodactyl with its wings outstretched.Because of price rises and better production from the watering equipment he installed, Mr. Corbea said, he expected revenues to increase by €5 million, or 50 percent, in 2022.Investments like Mr. Corbea’s in irrigation and technology are considered crucial for Romania’s agricultural growth to reach its potential.Cristian Movila for The New York TimesThe costs of diesel, pesticides and fertilizer have doubled or tripled, but, at least for now, the prices that Mr. Corbea said he had been able to get for his grain had more than offset those increases.But prices are volatile, he said, and farmers have to make sure that future revenues will cover their investments over the longer term.The calculus has paid off for other large players in the sector. “Profits have increased, you cannot imagine, the biggest ever,” said Ghita Pinca, general manager at Agricover, an agribusiness company in Romania. There is enormous potential for further growth, he said, though it depends on more investment by farmers in irrigation systems, storage facilities and technology.Some smaller farmers like Chipaila Mircea have had a tougher time. Mr. Mircea grows barley, corn and wheat on 1,975 acres in Poarta Alba, about 150 miles from Prundu, near the southeastern tip of Romania and along the canal that links the Black Sea with the Danube River.Drier weather means his output will fall from last year. And with the soaring prices of fertilizer and fuel, he said, he expects his profits to drop as well. Ukrainian exporters have lowered their prices, which has put pressure on what he is selling.Mr. Mircea’s farm is about 15 miles from Constanta port. Normally a major grain and trade hub, the port connects landlocked central and southeastern European countries like Serbia, Hungary, Slovakia, Moldavia and Austria with central and East Asia and the Caucasus region. Last year the port handled 67.5 million tons of cargo, more than a third of it grain. Now, with Odesa’s port closed off, some Ukrainian exports are making their way through Constanta’s complex.Grain from Ukraine being unloaded from a train car in Constanta, a Romanian port on the Black Sea.Cristian Movila for The New York TimesRailway cars, stamped “Cereale” on their sides, spilled Ukrainian corn onto underground conveyor belts, sending up billowing dust clouds last week at the terminal operated by the American food giant Cargill. At a quay operated by COFCO, the largest food and agricultural processor in China, grain was being loaded onto a cargo ship from one of the enormous silos that lined its docks. At COFCO’s entry gate, trucks that displayed Ukraine’s distinctive blue-and-yellow-striped flag on their license plates waited for their cargoes of grain to be inspected before unloading.During a visit to Kyiv last week, Romania’s president, Klaus Iohannis, said that since the beginning of the invasion more than a million tons of Ukrainian grain had passed through Constanta to locations around the world.But logistical problems prevent more grain from making the journey. Ukraine’s rail gauges are wider than those elsewhere in Europe. Shipments have to be transferred at the border to Romanian trains, or each railway car has to be lifted off a Ukrainian undercarriage and wheels to one that can be used on Romanian tracks.Truck traffic in Ukraine has been slowed by backups at border crossings — sometimes lasting days — along with gas shortages and damaged roadways. Russia has targeted export routes, according to Britain’s defense ministry.Romania has its own transit issues. High-speed rail is rare, and the country lacks an extensive highway system. Constanta and the surrounding infrastructure, too, suffer from decades of underinvestment.Bins storing corn, wheat, sunflower seeds and soybeans in Boryspil, Ukraine.Nicole Tung for The New York TimesOver the past couple of months, the Romanian government has plowed money into clearing hundreds of rusted wagons from rail lines and refurbishing tracks that were abandoned when the Communist regime fell in 1989.Still, trucks entering and exiting the port from the highway must share a single-lane roadway. An attendant mans the gate, which has to be lifted for each vehicle.When the bulk of the Romanian harvest begins to arrive at the terminals in the next couple of weeks, the congestion will get significantly worse. Each day, 3,000 to 5,000 trucks will arrive, causing backups for miles on the highway that leads into Constanta, said Cristian Taranu, general manager at the terminals run by the Romanian port operator Umex.Mr. Mircea’s farm is less than a 30-minute drive from Constanta. But “during the busiest periods, my trucks are waiting two, three days” just to enter the port’s complex so they can unload, he said through a translator.That is one reason he is less sanguine than Mr. Corbea is about Romania’s ability to take advantage of farming and export opportunities.“Port Constanta is not prepared for such an opportunity,” Mr. Mircea said. “They don’t have the infrastructure.”Constanta is bracing for backups at its port when the bulk of Romania’s harvest starts arriving in the coming weeks.Cristian Movila for The New York Times More

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    Russia’s Economic Outlook Grows ‘Especially Gloomy’ as Prices Soar

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    LONDON — After sanctions hobbled production at its assembly plant in Kaliningrad, the Russian automaker Avtotor announced a lottery for free 10-acre plots of land — and the chance to buy seed potatoes — so employees could grow their own food in the westernmost fringe of the Russian empire during “the difficult economic situation.”In Moscow, shoppers complained that a kilogram of bananas had shot up to 100 rubles from 60, while in Irkutsk, an industrial city in Siberia, the price of tampons at a store doubled to $7.Banks have shortened receipts in response to a paper shortage. Clothing manufacturers said they were running out of buttons.“The economic prospects for Russia are especially gloomy,” the Bank of Finland said in an analysis this month. “By initiating a brutal war against Ukraine, Russia has chosen to become much poorer and less influential in economic terms.”Even the Central Bank of Russia has predicted a staggering inflation rate between 18 and 23 percent this year, and a falloff in total output of as much as 10 percent.It is not easy to figure out the impact of the war and sanctions on the Russian economy at a time when even using the words “war” and “invasion” are illegal. President Vladimir V. Putin has insisted that the economy is weathering the measures imposed by the United States, Europe and others.Financial maneuvers taken by Moscow helped blunt the economic damage initially. At the start of the conflict, the central bank doubled interest rates to 19 percent to stabilize the currency, and recently was able to lower rates to 14 percent. The ruble is trading at its highest level in more than two years.Empty shelves in a supermarket in Moscow in March. Food prices have shot up, especially for items like imported fruit.Vlad Karkov/SOPA Images/LightRocket, via Getty ImagesAnd even though Russia has had to sell oil at a discount, dizzying increases in global prices are causing tax revenues from oil to surge past $180 billion this year despite production cuts, according to Rystad Energy. Natural gas deliveries will add another $80 billion to Moscow’s treasury.In any case, Mr. Putin has shown few signs that pressure from abroad will push him to scale back military strikes against Ukraine.Still, Avtotor’s vegetable patch lottery and what it says about the vulnerabilities facing the Russian people, along with shortages and price increases, are signs of the economic distress that is gripping some Russian businesses and workers since the war started nearly three months ago.Analysts say that the rift with many of the world’s largest trading partners and technological powerhouses will inflict deep and lasting damage on the Russian economy.“The really hard times for the Russian economy are still in front of us,” said Laura Solanko, a senior adviser at the Bank of Finland Institute for Emerging Economies.The stock of supplies and spare parts that are keeping businesses humming will run out in a few months, Ms. Solanko said. At the same time, a lack of sophisticated technology and investment from abroad will hamper Russia’s productive capacity going forward.The Lukoil refinery in Volgograd. Russia has had to sell oil at a discount, but its tax revenues have risen along with prices.ReutersThe Russian Central Bank has already acknowledged that consumer demand and lending are on a downhill slide, and that “businesses are experiencing considerable difficulties in production and logistics.”Ivan Khokhlov, who co-founded 12Storeez, a clothing brand that evolved from a showroom in his apartment in Yekaterinburg to a major company with 1,000 employees and 46 stores, is contending with the problem firsthand.“With every new wave of sanctions, it becomes harder to produce our product on time,” Mr. Khokhlov said. The company’s bank account in Europe was still blocked because of sanctions shortly after the invasion, while logistical disruptions had forced him to raise prices.“We face delays, disruptions and price increases,” he said. “As logistics with Europe gets destroyed, we rely more on China, which has its own difficulties too.”Hundreds of foreign firms have already curtailed their business in or withdrawn altogether from Russia, according to an accounting kept by the Yale School of Management. And the exodus of companies continued this week with McDonald’s. The company said that after three decades, it planned to sell its business, which includes 850 restaurants and franchises and employs 62,000 people in Russia.“I passed the very first McDonald’s that opened in Russia in the ’90s,” Artem Komolyatov, a 31-year-old tech worker in Moscow, said recently. “Now it’s completely empty. Lonely. The sign still hangs. But inside it’s all blocked off. It’s completely dead.”Nearby two police officers in bulletproof vests and automatic rifles stood guard, he said, ready to head off any protesters.In Leningradsky railway station, at one of the few franchises that remained open on Monday, customers lined up for more than an hour for a last taste of McDonald’s hamburgers and fries.The French automaker Renault also announced a deal with the Russian government to leave the country on Monday, although it includes an option to repurchase its stake within six years. And the Finnish paper company, Stora Enso, said it was divesting itself of three corrugated packaging plants in Russia.A closed McDonald’s in Podolsk, outside Moscow, on Monday. The company said this week it was putting its Russian business up for sale.Maxim Shipenkov/EPA, via ShutterstockMore profound damage to the structure of the Russian economy is likely to mount in the coming years even in the moneymaking energy sector.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

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    Treasury Secretary Yellen Looks to Get Global Tax Deal Back on Track

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    The Treasury secretary is traveling to Warsaw, Brussels and Bonn, Germany, this week at an uncertain time for the global economy.WARSAW — Treasury Secretary Janet L. Yellen arrived in Europe this week to join U.S. allies in confronting multiple threats to the world economy: Russia’s war in Ukraine, soaring inflation and food shortages.But one of Ms. Yellen’s first orders of business during a stop in Poland will be trying to get the global tax deal that she brokered last year back on track after months of fledgling deliberations about how to enact it. The two-pronged pact among more than 130 countries that was reached last October aimed to eliminate corporate tax havens by enacting a 15 percent global minimum tax. It would also shift taxing rights among countries so that corporations pay taxes based on where their goods and services are sold rather than where their headquarters are.Turning the agreement into a reality is proving to be a steep challenge.The European Union has already delayed its timeline for putting the tax changes in place by a year and progress has been halted over objections by Poland, which last month vetoed a plan to enact the new tax rate by the end of next year. Despite initially signing on to the deal, Poland has voiced reservations, including whether the minimum tax will actually prevent big tech companies from seeking out lower-tax jurisdictions. Polish officials have also expressed concern that the two parts of the tax agreement are moving ahead at different paces, as well as trepidation about the impact that raising its tax rate will have on its economy at a time when the country is absorbing waves of Ukrainian refugees.In meetings in Warsaw on Monday, Ms. Yellen pressed top Polish officials to let the process move ahead, making clear that the tax deal continues to be a priority of the United States. She is meeting with Poland’s prime minister, Mateusz Morawiecki, and the finance minister, Magdalena Rzeczkowska.According to the Treasury Department, Ms Yellen told Mr. Morawiecki that international tax reform and the global minimum tax would raise crucial revenues to benefit the citizens of both Poland and the United States.The meetings come at the beginning of a weeklong trip that also includes stops in Brussels and Bonn, Germany, which is hosting the Group of 7 finance ministers’ summit. Ms. Yellen will be focusing on coordinating sanctions against Russia with European allies and addressing growing concerns about how disruptions to energy and food supplies could affect the global economy.Poland’s finance minister, Magdalena Rzeczkowska, former head of the country’s tax agency. Her country has raised concerns over potential loopholes and the impact of the global tax plan.Radek Pietruszka/EPA, via ShutterstockThe tax agreement has been one of Ms. Yellen’s top priories as Treasury secretary. Gaining Poland’s support is critical because the European Union requires consensus among its member states to enact the tax changes.“I think the reality of turning a political commitment into binding domestic legislation is a lot more complex,” said Manal Corwin, a Treasury official in the Obama administration who now heads the Washington national tax practice at KPMG. “The E.U. has moved and gotten over most of the objections, but they still have Poland and it’s not clear whether they’re going to be able to get the last vote.”With President Emmanuel Macron of France heading the European Union’s rotating presidency until June, his administration was eager to get a deal implemented. But at a meeting of European finance ministers in early April, Poland became the sole holdout, saying there were no ironclad guarantees that big multinational companies wouldn’t still be able to take advantage of low-tax jurisdictions if the two parts of the agreement did not move ahead in tandem, undercutting the global effort to avoid a race to the bottom when it comes to corporate taxation.Poland’s stance was sharply criticized by European officials, particularly France, whose finance minister, Bruno Le Maire, suggested that Warsaw was instead holding up a final accord in retaliation for a Europe-wide political dispute. Poland has threatened to veto measures requiring unanimous E.U. votes because of an earlier decision by Brussels to block pandemic recovery funds for Poland.The European Union had refused to disburse billions in aid to Poland since late last year, citing separate concerns over Warsaw’s interference with the independence of its judicial system. Last week, on the eve of Ms. Yellen’s visit to Poland, the European Commission came up with an 11th-hour deal unlocking 36 billion euros in pandemic recovery funds for Poland, which pledged to meet certain milestones such as judiciary and economic reforms, in return for the money.Negotiators from around the world have been working for months to resolve technical details of the agreement, such as what kinds of income would be subject to the new taxes and how the deal would be enforced. Failure to finalize the agreement would likely mean the further proliferation of the digital services taxes that European countries have imposed on American technology giants, much to the dismay of those firms and the Biden administration, which has threatened to impose tariffs on nations that adopt their own levies.“It’s fluid, it’s moving, it’s a moving target,” Pascal Saint-Amans, the director of the center for tax policy and administration at the Organization for Economic Cooperation and Development, said of the negotiations at the D.C. Bar’s annual tax conference this month. “There is an extremely ambitious timeline.”Countries like Ireland, with a historically low corporate tax rate, have been wary of increasing their rates if others do not follow suit, so it has been important to ensure that there is a common understanding of the new tax rules to avoid opening the door to new loopholes.“The idea of having multiple countries put the same rules in place is a new concept in tax,” said Barbara Angus, the global tax policy leader at Ernst & Young and a former chief tax counsel on the House Ways and Means Committee. She added that it was important to have a multilateral forum so countries could agree on how to interpret and apply the levies.Yet, while Ms. Yellen is pushing foreign nations to adopt the tax agreement, it remains unclear whether the United States will be able to pass its own legislation to come into compliance.An earlier effort by House Democrats to adopt a tax plan that would satisfy terms of the agreement fell apart in the Senate, where Democrats continue to disagree over the scope and cost of a tax and spending bill that President Biden has proposed.Rep. Kevin Brady of Texas, the ranking member on the House Ways and Means Committee, has led Republican opposition to an international tax agreement, saying it makes the United States “less competitive.”Anna Moneymaker/Getty ImagesRepublicans in Congress have made clear that they are unlikely to support any agreement that the Biden administration has brokered and called on the Treasury Department to consult with them before trying to move ahead.“As it is, there’s very little chance of a global minimum tax agreement — there is already resistance to approval at the E.U., which should be the easiest part of these discussions, and it will only get harder going forward,” said Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee. “Meanwhile, here in the U.S., there’s little political support for an agreement that makes the U.S. less competitive and takes a big bite out of our tax base.”Ms. Yellen is expected to convey to her counterparts this week that the agreement is still a priority for the Biden administration and that she hopes that the United States can make the tax changes needed to comply with the agreement in a small spending package later this year, according to a person familiar with the negotiations. 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    Russian Shipping Traffic Remains Strong as Sanctions Take Time to Bite

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    WASHINGTON — Shipping traffic in and out of Russia has remained relatively strong in the past few months as companies have raced to fulfill contracts for purchases of energy and other goods before the full force of global sanctions goes into effect.With the European Union poised to introduce a ban on Russian oil in the coming months, that situation could change significantly. But so far, data show that while commerce with Russia has been reduced in many cases, it has yet to be crippled.Volumes of crude and oil products shipped out of Russian ports, for example, climbed to 25 million metric tons in April, data from the shipping tracker Refinitiv showed, up from around 24 million metric tons in December, January, February and March, and mostly above the levels of the last two years.Jim Mitchell, the head of oil research for the Americas at Refinitiv, said that Russia’s outgoing shipments in April had been buoyed by the global economic recovery from the pandemic, and that they did not yet reflect the impact of sanctions and other restrictions on Russia issued after its invasion of Ukraine on Feb. 24.Crude oil typically trades 45 to 60 days ahead of delivery, he said, meaning that changes to behavior following the Russian invasion were still working their way through the system.“The volume has been slow to decline, because these were contracts that have already been set,” Mr. Mitchell said. Defaulting on such contracts is “a nightmare for both sides,” he said, adding, “which means that even in the current environment nobody really wants to breach a contract.”Russia has stopped publishing data on its imports and exports since Western governments united to announce their array of sanctions and other restrictions. Exports of oil or gas that leave Russia through pipelines can also be difficult for outside firms to verify.But the global activities of the massive vessels that call on Russian ports to pick up and deliver containers of consumer products or bulk-loads of grain and oil are easier to monitor. Ships are required to transmit their identity, position, course and other information through automatic tracking systems, which are monitored by a variety of firms like Refinitiv, MarineTraffic, Kpler and others.These firms say that shipping traffic was relatively robust in March and April, despite the extraordinary tensions with Russia since its invasion of Ukraine. That reflects both how long some of the sanctions issued by the West are taking to come into effect and an enduring profit motive for trading with Russia, especially after prices for its energy products and commodities have cratered.Data from MarineTraffic, for example, a platform that shows the live location of ships around the world using those on-ship tracking systems, indicates that traffic from Russia’s major ports declined after the invasion but did not plummet. The number of container ships, tankers and bulkers — the three main types of vessels that move energy and consumer products — arriving and leaving Russian ports was down about 23 percent in March and April compared with the year earlier.“The reality is that the sanctions haven’t been so difficult to maneuver around,” said Georgios Hatzimanolis, who analyzes global shipping for MarineTraffic.Tracking by Lloyd’s List Intelligence, a maritime information service, shows similar trends. The number of bulk carriers, which transport loose cargo like grain, coal and fertilizer, that sailed from Russian ports in the five weeks after the invasion was down only 6 percent from the five-week period before the invasion, according to the service.In the weeks following the invasion, Russia’s trade with China and Japan was broadly stable, while the number of bulk carriers headed to South Korea, Egypt and Turkey actually increased, their data showed.“There’s still a lot of traffic back and forth,” said Sebastian Villyn, the head of risk and compliance data at Lloyd’s List Intelligence. “We haven’t really seen a drop.”Those figures contrast somewhat with statements from global leaders, who have emphasized the crippling nature of the sanctions. Treasury Secretary Janet L. Yellen said on Thursday that the Russian economy was “absolutely reeling,” pointing to estimates that it faces a contraction of 10 percent this year and double-digit inflation. Earlier this week, Ms. Yellen said that the Treasury Department was continuing to deliberate about whether to extend an exemption in its sanctions that has allowed American financial institutions and investors to keep processing Russian bond payments. Speaking at a Senate hearing, she said that officials were actively working to determine the “consequences and spillovers” of allowing the license to expire on May 25, which would likely lead to Russia’s first default on its foreign debt in more than a century.Global sanctions on Russia continue to expand in both their scope and their impact, especially as Europe, a major customer of Russian energy, moves to wean itself off the country’s oil and coal. Trade data suggest that shipments into Russia of high-value products like semiconductors and airplane parts — which are crucial for the military’s ability to wage war — have plummeted because of export controls issued by the United States and its allies.But many sanctions have been targeted at certain strategic goods, or exempted energy products — which are Russia’s major exports — to avoid causing more pain to consumers at a time of rapid price increases, disrupted supply chains and a growing global food crisis.Truckers lined up to cross into Panemune, Lithuania, near the Russian port of Kaliningrad last month.Paulius Peleckis/Getty ImagesSo far, Western governments have levied an array of financial restrictions, including banning transactions with Russia’s central bank and sovereign wealth fund, freezing the assets of many Russian officials and oligarchs, and cutting off Russian banks from international transactions. Canada and the United States have already banned imports of Russian energy, and also prohibited Russian ships from calling at their ports, but the countries are not among Russia’s largest energy customers.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

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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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    Russia-Ukraine War Is Reshaping How Europe Spends

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    Romania is buying iodine pills. Ireland enacted special incentives for its farmers to till essential crops. And military spending is rising across the continent.Nicolae Ciuca spent a lifetime on the battlefield before being voted in as prime minister of Romania four months ago. Yet even he did not imagine the need to spend millions of dollars for emergency production of iodine pills to help block radiation poisoning in case of a nuclear blast, or to raise military spending by 25 percent in a single year.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” Mr. Ciuca, a retired general, said through a translator at Victoria Palace, the government’s headquarters in Bucharest. “We never expected this kind of war in the 21st century.”Across the European Union and Britain, Russia’s invasion of Ukraine is reshaping spending priorities and forcing governments to prepare for threats thought to have been long buried — from a flood of European refugees to the possible use of chemical, biological and even nuclear weapons by a Russian leader who may feel backed into a corner.The result is a sudden reshuffling of budgets as military spending, essentials like agriculture and energy, and humanitarian assistance are shoved to the front of the line, with other pressing needs like education and social services likely to be downgraded.The most significant shift is in military spending. Germany’s turnabout is the most dramatic, with Chancellor Olaf Scholz’s promise to raise spending above 2 percent of the country’s economic output, a level not reached in more than three decades. The pledge included an immediate injection of 100 billion euros — $113 billion — into the country’s notoriously threadbare armed forces. As Mr. Scholz put it in his speech last month: “We need planes that fly, ships that sail and soldiers who are optimally equipped.”The commitment is a watershed moment for a country that has sought to leave behind an aggressive military stance that contributed to two devastating world wars.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” said Nicolae Ciuca, prime minister of Romania.Cristian Movila for The New York TimesA wartime mind-set has also spread to sectors aside from defense. With prices soaring for oil, animal feed and fertilizer, Ireland introduced a “wartime tillage” program last week to amp up grain production, and created a National Fodder and Food Security Committee to manage threats to the food supply.Farmers will be paid up to €400 for every additional 100-acre block that is planted with a cereal crop like barley, oats or wheat. Planting additional protein crops like peas and beans will earn a €300 subsidy.“The illegal invasion in Ukraine has put our supply chains under enormous pressure,” Charlie McConalogue, the agriculture minister, said in announcing the $13.2 million package. Russia is the world’s largest supplier of wheat and with Ukraine accounts for nearly a quarter of total global exports.Spain has been running down its supplies of corn, sunflower oil and some other produce that also come from Russia and Ukraine. “We’ve got stock available, but we need to make purchases in third countries,” Luis Planas, the agriculture minister, told a parliamentary committee.Mr. Planas has asked the European Commission to ease some rules on Latin American farm imports, like genetically modified corn for animal feed from Argentina, to offset the lack of supply.Extraordinarily high energy prices have also put intense pressure on governments to cut excise taxes or approve subsidies to ease the burden on families that can’t afford to heat every room in their home or fill their car’s gas tank.Ireland reduced gasoline taxes, and approved an energy credit and a lump-sum payment for lower-income households. Germany announced tax breaks and a $330-per-person energy subsidy, which will end up costing the treasury $17.5 billion.Ireland introduced a “wartime tillage” program last week to increase grain production.Niall Carson – PA Images, via Getty ImagesIn Spain, the government agreed last week to defray the cost of gasoline in response to several days of strikes by truckers and fishermen, which left supermarkets without fresh supplies of some of their most basic items.And in Britain, a cut in fuel taxes and support for poorer households will cost $3.2 billion.The outlook is a change from October, when Rishi Sunak, Britain’s chancellor of the Exchequer, announced a budget for what he called an “economy fit for a new age of optimism,” with large increases in education, health and job training.In his latest update to Parliament, Mr. Sunak warned that “we should be prepared for the economy and public finances to worsen potentially significantly,” as the country faces the biggest drop in living standards it has ever seen.The energy tax relief was welcomed by the public, but the reduced revenues put even more pressure on governments that are already managing record high debt levels.“The problem is that some countries have quite a big chunk of legacy debt — in Italy and France, it’s over 100 percent of gross domestic product,” said Lucrezia Reichlin, an economics professor at the London Business School, referring to the huge amounts spent to respond to the pandemic. “That is something which is very much new for the economic governance of the union.” European Union rules, which were temporarily suspended in 2020 because of the coronavirus, limit government debt to 60 percent of a country’s economic output.And the demands on budgets are only increasing. European Union leaders said this month that the bill for new defense and energy spending could run as high as $2.2 trillion.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. 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