European Union

More stories

  • 100 Shares149 Views

    in Economy

    EU Leaders Say Putin’s Gas Power Is Weakening

    by

    In Germany and elsewhere, leaders are growing more confident that months of work to stockpile and line up alternate energy sources may help them blunt Russia’s weaponization of exports.BERLIN — Not long after Russian forces invaded Ukraine, another mobilization began. European energy ministers and diplomats started jetting across the world and inking energy deals — racing to prepare for a rough winter should Russia choose to cut off its cheap gas in retaliation for Western sanctions.Since then, President Vladimir V. Putin of Russia has fiddled with the gas tap to Europe repeatedly. Through Gazprom, the Kremlin-controlled gas monopoly, Russia has vastly reduced supplies or suspended them for days at a time — until last week, when it announced that it would indefinitely halt flows through the Nord Stream 1 pipeline that supplies Germany, and through it, much of Europe.Yet when the blow finally came, it provoked more ridicule than outrage among European leaders, who say that by now they would expect nothing less from Mr. Putin and that they have accepted that the era of cheap Russian gas is over, unimaginable as that might have seemed just months ago.In some corners, even as Europe’s leaders scramble to blunt the blow from lower gas supplies and higher prices, there is a growing sense that perhaps Russia’s weaponizing of gas exports is a strategy of diminishing returns — and that Mr. Putin may have overplayed his hand.“It would have been surprising the other way around,” Robert Habeck, Germany’s economy minister, said this week of Russia’s announcement that Nord Stream 1 would remain shut. “The only thing from Russia that is reliable is the lies.”Even the markets seemed to take the latest disruption in stride. After rising 5 percent on the heels of Gazprom’s announcement, prices are now lower than they were at the start of last week.That does not mean that European nations are not feeling the pain, or have skirted the risk that the energy crunch could sow social unrest, fracturing their unity against the Kremlin this winter. But a lot of the damage has already been done, with gas prices several times above anything that would be considered normal and pressure mounting on consumers and businesses.The question remains, then, of just how successful the hard pivot from Russian energy actually is — whether Europe has lined up enough new sources, whether its stockpiles can get it through the winter, whether conservation efforts can make a difference and whether governments can help shield consumers from rising prices.“The only thing from Russia that is reliable is the lies,” said Robert Habeck, right, Germany’s economy minister, with Chancellor Olaf Schulz, center, and Christian Lindner, the finance minister.Tobias Schwarz/Agence France-Presse — Getty ImagesRussian officials are watching and waiting for what they believe is the inevitable collapse of European resolve as the economic pain bites.“I think that the coming winter will show how real their belief is in the possibility of refusing Russian gas,” the Russian energy minister, Nikolai Shulginov, said in an interview with the Russian state-run news agency Tass. “This will be a completely new life for the Europeans. I think that, most likely, they will not be able to refuse.”Russian state news outlets are full of reports of protests in Europe. Italians, Russian state media reported, are being told to boil their pasta for just two minutes before turning off the heat, while Germans are forgoing showers.The message: Sooner or later, the Europeans’ unity against Russia will crumble under the weight of high gas prices, while Russia’s standing has been elevated.“We have not lost anything and will not lose anything,” Mr. Putin said on Wednesday.But increasingly, Europe’s leaders are signaling that, having spent months preparing for this moment, they are ready for the showdown.“Now our work is paying off!” the European Commission president, Ursula von der Leyen, said on Wednesday in Brussels. “At the beginning of the war, Russia’s pipeline gas was 40 percent of all imported gas. Today it is now down to only 9 percent of our gas imports.”That is because European leaders — especially those from Italy and Germany, which rely most on Russian energy — have crisscrossed the globe. From Algeria to Qatar, Senegal, Congo and Canada, they have been negotiating deals to replace Russian supplies.Gazprom’s Orenburg gas processing plant in Russia. Steep energy prices netted the company $41.75 billion profit in the first half of the year — $10 billion of which went to the Kremlin.Alexander Manzyuk/ReutersGermany has also leaned heavily on Norway and the Netherlands, which agreed to extend the life of its biggest gas field to combat the energy crisis.As a result, Germany’s dependency on cheap Russian gas — once more than half its overall gas imports — decreased to less than 10 percent in August.In Italy, consumption from Moscow has dropped to 23 percent from 40 percent.Chancellor Olaf Scholz of Germany and other European leaders are defiantly claiming the end of an era.For decades, dating to the days of the Soviet Union, Moscow had insisted to Germany and others that it was a reliable energy partner, no matter the political context. But now, European leaders say, Mr. Putin has shattered that understanding.“Something that held true throughout the Cold War no longer applies,” Mr. Scholz said last weekend. “Russia is no longer a reliable energy supplier. That is part of the new reality.”That new reality, perhaps, should not have come as such a shock. Mr. Putin’s gas brinkmanship dates to 2004, when Gazprom cut deliveries to Belarus, in a battle for control of a transit pipeline into Western Europe.In 2009, as Ukraine sought NATO membership under a pro-Western president, Mr. Putin ordered a sharp reduction in gas flows through the country; after Ukraine elected a pro-Russian president a year later, the Kremlin rewarded him with a 30 percent cut in natural gas prices.And even before Russia invaded Ukraine, it reduced exports in the summer of 2021, and did not refill Gazprom-owned storage sites in Europe.A compressor station near the German-Polish border for Russian gas through the Yamal-Europe pipeline.Filip Singer/EPA, via ShutterstockSergey Vakulenko, an analyst in Bonn, Germany, who worked for years in Russia’s energy industry, said that over the last two decades Russian officials had seen the geopolitical power that the United States derived from its influence over the global financial system, and sought to harness Russia’s status as a major energy exporter in a similar way.“There was a great desire, as a superpower, to have something similar,” he said. “There was the feeling that oil and gas was the answer.”Yet Russia’s cuts in gas exports to Europe since its invasion of Ukraine are of a different order of magnitude. “This is now just blackmail,” said Mikhail Krutikhin, a Russian energy analyst. “We haven’t seen it on this scale before.”In going so far, Mr. Putin has also invited greater risks. An internal Russian government economic forecast described this week by Bloomberg News estimated that a full cutoff of gas to Europe would cost as much as $6.6 billion in lost tax revenues.But with Gazprom netting a record profit of $41.75 billion in the first half of the year — $10 billion of which it passed on to the Kremlin — that is a cost Mr. Putin has calculated to be acceptable.For Russia, oil is the biggest revenue source, and Mr. Putin may be keen to use gas as a political weapon while he can, said Thomas O’Donnell, an energy expert at the Hertie School, a public policy school in Berlin.“This is where he’s got his biggest leverage to cause the most trouble in the European Union,” Mr. O’Donnell said. He added, “It’s a lever that he knows he’s going to lose in a year — or even maybe after this winter.”And a lot may depend on the severity of the winter. Even if liquid natural gas imports to Europe from other sources continue at their record high rate, a study released this week by the research institute Bruegel estimated that a complete stop to Russian supplies would require all of Europe to cut its consumption by 15 percent.European nations that used to rely on Russian gas imports for big chunks of their domestic energy production have been racing to fill gas storage facilities. Germany’s are now at 86 percent capacity, Italy’s at almost 84 percent.In Germany, large industry players have so far managed to drop their consumption by around 20 percent. A similar amount would have to be shaved off household usage, according to German energy and economy ministry models, should Russian gas remain shut off. If households don’t cut back, Germany’s gas regulator has repeatedly warned, the option could be rationing.Lights switched off in apartments in Frankfurt. German energy officials have repeatedly warned that households must conserve energy or face rationing.Michael Probst/Associated PressEurope is aiming to have enough liquid natural gas solutions in place by next year. Germany recently signed a deal for a fifth floating L.N.G. terminal, while terminals in Belgium, France and the Netherlands are fully booked.The key to surviving this winter in the face of a Nord Stream shutdown will be how well European states work together.So far, only Hungary has signed a deal for additional supplies with Gazprom.France and Germany, in contrast, agreed this week that Paris would send any excess gas to Germany, where it is badly needed, and in return Berlin promised to send its extra electricity.The tricky issue will be what happens should more critical German industry have to cut back, and voters begin to insist supplies not be diverted to neighbors — like the Czech Republic, where 70,000 people already came out in protest of soaring prices. It is a challenge many European leaders may face this winter, warned Annalena Baerbock, Germany’s foreign minister.“That will be the central question that will really put us to the test in the coming months,” Ms. Baerbock said, at a meeting of German ambassadors in Berlin this week. “Will we be able to secure our energy supply for all people in Europe together in solidarity, or not?”Gaia Pianigiani More

  • 150 Shares139 Views

    in Economy

    Portugal Could Hold an Answer for a Europe Captive to Russian Gas

    by

    Portugal has no coal mines, oil wells or gas fields. Its impressive hydropower production has been crippled this year by drought. And its long-running disconnect from the rest of Europe’s energy network has earned the country its status as an “energy island.”Yet with Russia withholding natural gas from countries opposed to its invasion of Ukraine, the tiny coastal nation of Portugal is suddenly poised to play a critical role in managing Europe’s looming energy crisis.For years, the Iberian Peninsula was cut off from the web of pipelines and huge supply of cheap Russian gas that power much of Europe. And so Portugal and Spain were compelled to invest heavily in renewable sources of energy like wind, solar and hydropower, and to establish an elaborate system for importing gas from North and West Africa, the United States, and elsewhere.Now, access to these alternate energy sources has taken on new significance. The changed circumstances are shifting the power balances among the 27 members of the European Union, creating opportunities as well as political tensions as the bloc seeks to counter Russia’s energy blackmail, manage the transition to renewables and determine infrastructure investments.The Alto Tamega dam, part of a hydropower facility in northern Portugal that will be operational in 2024.Matilde Viegas for The New York TimesThe urgency of Europe’s task is on display this week. On Wednesday, Russia’s energy monopoly, Gazprom, again suspended already reduced gas deliveries to Germany through its Nord Stream 1 pipeline. With natural gas costing about 10 times what it did a year ago, the European Union has called for an emergency meeting of its energy ministers next week.As Brussels tries to figure out how to manage the crisis, the possibility of funneling more gas to Europe through Portugal and Spain is gaining attention.Portugal and Spain were among the first European nations to build the kind of processing terminals needed to accept boatloads of natural gas in liquefied form and to convert it back into the vapor that could be piped into homes and businesses.This imported liquefied natural gas, or L.N.G., was more expensive than the type much of Europe piped in from Russia. But now that Germany, Italy, Finland and other European nations are frantically seeking to replace Russian gas with substitutes shipped by sea from the United States, North Africa and the Middle East, this disadvantage is an advantage.Solar panels in Sintra. Connecting such panels to Europe’s electricity grid could help ease energy shortages on the continent.Matilde Viegas for The New York TimesTogether, Spain and Portugal account for one-third of Europe’s capacity to process L.N.G. Spain has the most terminals and the biggest, though Portugal has the most strategically located.Its terminal in Sines is the closest of any in Europe to the United States and the Panama Canal; it was the first port in Europe to receive L.N.G. from the United States, in 2016. Even before the war in Ukraine, Washington identified it as a strategically important gateway for energy imports to the rest of Europe.Spain also has an extensive network of pipelines that carry natural gas from Algeria and Nigeria, as well as large storage facilities.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More

  • 125 Shares149 Views

    in Economy

    How Joe Manchin Left a Global Tax Deal in Limbo

    by

    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

  • 138 Shares199 Views

    in Economy

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

    by

    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

  • 113 Shares119 Views

    in Economy

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

    by

    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

  • 150 Shares199 Views

    in Economy

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

    by

    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. More

  • 138 Shares99 Views

    in Economy

    Russian Shipping Traffic Remains Strong as Sanctions Take Time to Bite

    by

    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

  • 138 Shares119 Views

    in Economy

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

    by

    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