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    Biden Says He Is Confident America Will Not Default on Its Debts

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    Speaking just moments before he left for a diplomatic trip overseas, President Biden said a default would be “catastrophic.”President Biden said a failure by the U.S. to pay its bills would be “catastrophic” for the economy.Tom Brenner for The New York TimesPresident Biden, just moments before he departed on Wednesday for a diplomatic trip to Asia, said he was confident “America will not default” as congressional leaders in both parties offered some signs of optimism about eventually reaching a deal to raise the nation’s borrowing limit.“Every leader in the room understands the consequences if we failed to pay our bills,” Mr. Biden said at the White House on Wednesday before leaving for Hiroshima, Japan, to attend the Group of 7 meeting there. “And it would be catastrophic for the American economy and the American people.”Mr. Biden described his face-to-face meeting with congressional negotiators the day before as productive, “civil and respectful” and said both Democrats and Republicans agreed that the United States cannot default.But his decision to get a final word in on the negotiations signaled that even as he departs for a summit on the global economy, the White House is focused on averting an economic crisis back home.Mr. Biden decided to cut the trip to Asia short to be back for what he called “final negotiations” over the ceiling, the statutory cap on how much the government can borrow to finance its obligations. He is scheduled to return to Washington on Sunday, skipping planned visits to Papua New Guinea and Australia.Mr. Biden echoed the optimism offered by both Democratic and Republican leaders after Tuesday’s meeting.He has designated his senior adviser, Steve Ricchetti, and Shalanda Young, the director of the Office of Management and Budget, to speak to a team of negotiators representing congressional Republicans. Speaker Kevin McCarthy had also commended the move as a sign of progress on Tuesday.“We narrowed the group to meet and hammer out our differences,” Mr. Biden said, adding that the negotiating teams met on Tuesday night and will meet again on Wednesday.Time is running out for the two sides to reach a consensus.The government reached the $31.4 trillion debt limit on Jan. 19, and the Treasury Department has been using a series of accounting maneuvers to keep paying its bills. Treasury Secretary Janet L. Yellen reiterated that the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit, potentially causing a recession or the elimination of jobs.Republicans have said they want to cut federal spending before lifting the ceiling, while Mr. Biden has said negotiating over the cuts must not be a requirement for raising the debt limit. Even so, Democrats have increasingly appeared open to reaching a compromise with Republicans. Both Democratic leaders from New York, Senator Chuck Schumer, the majority leader, and Representative Hakeem Jeffries, the minority leader, told reporters that passing a bipartisan bill in both chambers was the only way forward.Mr. Biden signaled he was open to a potential agreement for tougher work requirements on federal aid programs over the weekend, when he reminded the press that he had voted for such measures — with the exception of Medicaid — as a senator.Asked on Wednesday if he was still considering work requirements, Mr. Biden said it is possible, “but not anything of any consequence.”“I’m not going to accept any work requirements that’s going to have an impact on the medical health needs of people,” Mr. Biden said.Mr. Biden added that he did not believe cutting his overseas trip short would help China gain influence in the region. The administration has sought to bolster partnerships in the region to to counter China’s economic presence. But the ongoing talks forced Mr. Biden to cut stops in Papua New Guinea and Australia.Mr. Biden said he made sure to call Prime Minister Anthony Albanese of Australia on Tuesday to let him know of his decision to cancel part of his trip. While officials in the administration were still deciding whether they would shorten the trip, they also discussed sending a replacement, including Vice President Kamala Harris or Antony J. Blinken, the secretary of state, according to an official familiar with the matter.As of Wednesday morning, there were no such plans to send a substitute. More

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    Russia Sidesteps Western Punishments, With Help From Friends

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    A surge in trade by Russia’s neighbors and allies hints at one reason its economy remains so resilient after sweeping sanctions.WASHINGTON — A strange thing happened with smartphones in Armenia last summer.Shipments from other parts of the world into the tiny former Soviet republic began to balloon to more than 10 times the value of phone imports in previous months. At the same time, Armenia recorded an explosion in its exports of smartphones to a beleaguered ally: Russia.The trend, which was repeated for washing machines, computer chips and other products in a handful of other Asian countries last year, provides evidence of some of the new lifelines that are keeping the Russian economy afloat. Recent data show surges in trade for some of Russia’s neighbors and allies, suggesting that countries like Turkey, China, Belarus, Kazakhstan and Kyrgyzstan are stepping in to provide Russia with many of the products that Western countries have tried to cut off as punishment for Moscow’s invasion of Ukraine.Those sanctions — which include restrictions on Russia’s largest banks along with limits on the sale of technology that its military could use — are blocking access to a variety of products. Reports regularly filter out of Russia about consumers frustrated by high-priced or shoddy goods, ranging from milk and household appliances to computer software and medication, said Maria Snegovaya, a senior fellow for Russia and Eurasia at the Center for Strategic and International Studies, in an event at the think tank this month.Even so, Russian trade appears to have largely bounced back to where it was before the invasion of Ukraine last February. Analysts estimate that Russia’s imports may have already recovered to prewar levels, or will soon do so, depending on their models.In part, that could be because many nations have found Russia hard to quit. Recent research showed that fewer than 9 percent of companies based in the European Union and Group of 7 nations had divested one of their Russian subsidiaries. And maritime tracking firms have seen a surge in activity by shipping fleets that may be helping Russia to export its energy, apparently bypassing Western restrictions on those sales.While Western countries have not banned the shipment of consumer products like cellphones and washing machines to Russia, other sweeping penalties were expected to clamp down on its economy. They include a cap on the price that Russia can charge for its oil as well as restricted access to semiconductors and other critical technology.Companies like H&M halted operations in Russia after the invasion of Ukraine, but the economy has proved resilient.Maxim Shipenkov/EPA, via ShutterstockSome companies, including H&M, IBM, Volkswagen and Maersk, halted operations in Russia after the invasion, citing moral and logistical reasons. But the Russian economy has proved surprisingly resilient, raising questions about the efficacy of the West’s sanctions. Countries have had difficulty reducing their reliance on Russia for energy and other basic commodities, and the Russian central bank has managed to prop up the value of the ruble and keep financial markets stable.On Monday, the International Monetary Fund said it now expected the Russian economy to grow 0.3 percent this year, a sharp improvement from its previous estimate of a 2.3 percent contraction.The I.M.F. also said it expected Russian crude oil export volume to stay relatively strong under the current price cap, and Russian trade to continue being redirected to countries that had not imposed sanctions.Most container ships have stopped ferrying goods like phones, washing machines and car parts into the port of St. Petersburg. Instead, such products are being carried on trucks or trains from Belarus, China and Kazakhstan. Fesco, the Russian transport operator, has added new ships and new ports of call to a route with Turkey that transports Russian industrial goods and foreign appliances and electronics between Novorossiysk and Istanbul.Sergey Aleksashenko, former deputy minister of finance of the Russian Federation, said at an event this month that 2023 would be “a difficult year” for the Russian economy, but that there would be “no catastrophe, no collapse.”Some parts of the Russian economy are struggling, he said, pointing to car factories that shut down after being unable to secure parts from Germany, France, Japan and South Korea. But military expenditures and higher energy prices helped prop it up last year.“We may not say that Russian economy is in tatters, that it is destroyed, that Putin lacks funds to continue his war,” Mr. Aleksashenko said, referring to President Vladimir V. Putin. “No, it’s not true.”Russia stopped publishing trade data after its invasion of Ukraine. But analysts and economists can still draw conclusions about its trade patterns by adding up the commerce that other countries report with Russia.The International Monetary Fund said it expected Russian crude oil exports to stay relatively strong despite a Western price cap. Andrey Rudakov/BloombergMatthew Klein, an economics writer and a co-author of “Trade Wars Are Class Wars,” is one of the people drawing conclusions about this Russia-size hole in the global economy. According to his calculations, the value of global exports to Russia in November was just 15 percent below a monthly preinvasion average.Global exports to Russia most likely fully recovered in December, though many countries have not yet issued their trade data for the month, he said.“Most of that recovery has been driven overall by China and Turkey particularly,” Mr. Klein said.It’s unclear how much of this trade violates sanctions imposed by the United States and Europe, but the patterns are “suspicious,” he said. “It would be consistent with the idea that there are ways of trying to get around some of the sanctions.”Silverado Policy Accelerator, a Washington nonprofit, recently issued a similar analysis, estimating that the value of Russian imports from the rest of the world had exceeded prewar levels by September.One of the case studies in that report was the jump in Armenian smartphone sales. Andrew S. David, the senior director of research and analysis at Silverado, said the trends reflected how supply chains had shifted to continue providing Russia with goods.Samsung and Apple, previously major suppliers of Russian cellphones, pulled out of the Russian market after the invasion. Exports of popular Chinese phone brands, like Xiaomi, Realme and Honor, also initially dipped as companies struggled to understand and cope with new restrictions on sending technology or making international payments to Russia.But after an “adjustment period,” Chinese brands started to take off in Russia, Mr. David said. Overall Chinese exports to Russia reached a record high in December, helping to offset a steep drop in trade with Europe. Apple and Samsung phones also appeared to begin to find their way back to Russia, rerouted through friendly neighboring countries.“Armenia is certainly not the only one,” Mr. David said. “There’s a lot coming through central western Asia, Turkey and the former Soviet republics.”Shipments to Russia of other products, like passenger vehicles, have also rebounded. And China has increased exports of semiconductors to Russia, though Russia’s total chip imports remain below prewar levels.President Vladimir V. Putin at a military training facility in Russia. Military expenditures and higher energy prices helped prop up the Russian economy last year.Pool photo by Mikhail KlimentyevOne major open question is how effectively the Western price cap will hold down Russia’s oil revenue this year.The cap allows Russia to sell its oil globally using Western maritime insurance and financing as long as the price does not exceed $60 per barrel. That limit, which is essentially an exception to Group of 7 sanctions, is designed to keep oil flowing on global markets while limiting the Russian government’s revenue from it.Some analysts have suggested that Russia is finding ways around the effort by using ships that do not rely on Western insurance or financing.Ami Daniel, the chief executive of Windward, a maritime data company, said he had seen hundreds of instances in which people from countries like the United Arab Emirates, India, China, Pakistan, Indonesia and Malaysia bought vessels to try to set up what appeared to be a non-Western trading framework for Russia.“Basically, Russia has been gearing up toward being able to trade outside of the rule of law,” he said.Mr. Daniel said his firm had also seen a sharp uptick in shipping practices that appeared to be Russian efforts to contravene Western sanctions. They include transfers of Russian oil between ships far out at sea, in international waters that are not under the jurisdiction of any country’s navy, and attempts by ships to mask their activities by turning off satellite trackers that log their location or transmitting fake coordinates.Much of this activity had been taking place in the mid-Atlantic Ocean. But after media coverage of suspicious practices in this region, the hub moved south, off the coast of West Africa, Mr. Daniel said.“They’re exploding,” he said of deceptive shipping practices. “It’s happening at an industrial scale.”So far, the oil price cap appears to be accomplishing its goal of reducing the price that Russia can charge while keeping global supplies flowing. But it remains to be seen whether this shadow fleet of ships is big enough to allow Russia to buy and sell oil outside the cap, said Ben Cahill, a senior fellow at the Center for Strategic and International Studies, during a January panel discussion.“If that fleet is big enough for Russia to really operate outside the reach” of the Group of 7 countries, the cap probably “won’t have the kind of leverage that policymakers wanted,” Mr. Cahill said. “I think we should know within a couple of months.”Alan Rappeport More

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    David Lipton, Economic Diplomat, Will Step Down From Treasury

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    Mr. Lipton, who served in senior roles in the Clinton and Obama administrations and at the I.M.F., is retiring.WASHINGTON — David A. Lipton, a longtime figure in the field of international economics, is stepping down on Wednesday from his job as international affairs counselor to Treasury Secretary Janet L. Yellen, according to two Treasury Department officials familiar with his plans.Mr. Lipton, one of Ms. Yellen’s closest aides, is departing at a critical moment for the global economy. He has become a key negotiator in some of Ms. Yellen’s biggest policy issues. He was deeply involved in international discussions about a global minimum tax last year and has been at the center of the talks among the Group of 7 nations to impose a cap on the price of Russian oil.An economist by training with a doctoral degree from Harvard, Mr. Lipton, 69, has held senior economic policymaking positions in the Clinton, Obama and Biden administrations. He was also a top official at the International Monetary Fund, where he served as the deputy managing director.Last year, Ms. Yellen recruited Mr. Lipton to return to the federal government to help steer the Treasury Department’s international portfolio while President Biden’s nominees to lead the international affairs division were awaiting Senate confirmation.In a statement, Ms. Yellen described Mr. Lipton as one of her closest advisers and lauded his career.The Biden PresidencyHere’s where the president stands after the midterm elections.Beating the Odds: President Biden had the best midterms of any president in 20 years, but he still faces the sobering reality of a Republican-controlled House.2024 Questions: Mr. Biden feels buoyant after the better-than-expected midterms, but as he turns 80, he confronts a decision on whether to run again that has some Democrats uncomfortable.The ‘Trump Project’: With Donald J. Trump’s announcement that he is officially running for president again, Mr. Biden and his advisers are planning to go on the offensive.Legislative Agenda: The Times analyzed every detail of Mr. Biden’s major legislative victories and his foiled ambitions. Here’s what we found.“He will be irreplaceable for the department, but I feel incredibly fortunate to have had his counsel in my first two years,” Ms. Yellen said. “During that time, David has helped shape our international agenda across a wide set of challenges — from the recovery from the pandemic to our response to Russia’s war against Ukraine.”Mr. Lipton first met Ms. Yellen while a graduate student at Harvard, where he took her introductory course in macroeconomics. Lawrence H. Summers, who would serve as Treasury secretary during the Clinton administration, was also in the class, and he and Mr. Lipton became friends.After graduating from Harvard with a Ph.D. in economics in 1982, Mr. Lipton joined the I.M.F., where he worked for eight years on assignments that involved stabilizing the economies of poor countries.In 1993, after a stint working with the economist Jeffrey D. Sachs advising Russia, Poland and Slovenia on their transitions to capitalism, Mr. Lipton joined the Clinton administration’s Treasury Department. He was recruited by Mr. Summers, who was then the deputy Treasury secretary under Robert E. Rubin. He initially focused on Eastern Europe and the former Soviet Union before turning his attention to easing turmoil stemming from the Asian financial crisis in 1997.While President George W. Bush was in office, Mr. Lipton worked at Citigroup and at the hedge fund Moore Capital Management. He joined the Obama administration as an economic adviser. In 2011, Christine Lagarde named him her top deputy at the I.M.F. when the fund was spending billions of dollars to prop up Greece’s economy and as the economic tension between the United States and China was intensifying.Mr. Lipton’s second term at the monetary fund was cut short in 2020 when Kristalina Georgieva reshuffled its senior leadership. His position at the fund, which is usually decided by the United States, was filled by Geoffrey Okamoto, a former Trump administration official.A longtime proponent of the benefits of a global economy and multilateralism, Ms. Yellen persuaded Mr. Lipton to join her team as the Biden administration sought to mend international relationships that had been frayed during the Trump era.“David Lipton has been an insufficiently sung hero of the international financial system for the last 30 years,” Mr. Summers said in a text message. “His quiet strength and wisdom both prevented and resolved numerous crises.”Mr. Lipton, who grew up in Wayland, Mass., was a star wrestler in high school, serving as a co-captain for two years. At Harvard, he and Mr. Summers bonded over squash and economics.During remarks introducing Mr. Lipton at the Peterson Institute for International Economics in 2016, Mr. Summers described his former classmate as an economic “fireman in chief” who maintained a “keep hope alive” attitude when economic diplomacy got tough.Known for a dry wit that belies his earnest demeanor, Mr. Lipton expressed appreciation for the high praise but recalled that when he met Mr. Summers on the first day of school he initially had his doubts.“After talking to Larry for about 15 minutes, my reaction was, ‘If they’re all like that, I’m really in trouble,’” Mr. Lipton joked. More

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    What Price Is Right? Why Capping Russian Oil Is Complicated.

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    Officials from the Group of 7 are striving to strike a delicate balance that encourages Russia to keep pumping oil but to sell it at a discount.WASHINGTON — As the United States and its Western counterparts race to finalize the mechanics of an oil price cap intended to starve Russia of revenue and stabilize global energy markets, a crucial question remains unresolved: How should the price be set?The Group of 7 countries that formally backed the price cap concept this month are deliberating how much Russia should be allowed to charge for its oil as they prepare to release more details of the plan. It has emerged as a central question that could determine the success of the novel idea, Russia’s response and the trajectory of oil prices as winter approaches. Setting the price will require aligning the complex array of economic and diplomatic forces that govern volatile oil markets.The consequences of getting the oil price cap wrong could be severe for the world economy, and time is running short. The Biden administration fears that if the cap is not in place by early December, oil prices around the world could skyrocket given Russia’s outsize role as an energy producer. That’s because when a European Union oil embargo and a ban on financial insurance services for Russian oil transactions take effect on Dec. 5, the removal of millions of barrels of Russian oil from the market could send prices soaring.European financing and insurance dominate the global oil market, so the looming sanctions could disrupt exports to parts of the world that do not have their own embargoes — by making it harder or more expensive to get Russian oil at a time when energy costs are already high. The price cap will essentially be an exception to Western sanctions, allowing Russian oil to be sold and shipped as long as it remains below a certain price.The idea has won plaudits from economists who see it as an elegant win-win strategy for the West. But many energy analysts and traders have expressed deep skepticism about the concept. They believe that a fear of sanctions could scare financial services companies off Russian oil, and that Russia and its trading partners will circumvent the cap through new forms of insurance or illicit transactions.The impact of the proposed oil price cap and the potential for unintended consequences are two of the biggest quandaries facing the nations that have been enduring soaring inflation prompted by supply chain disruptions and Russia’s war in Ukraine.The leaders of the Group of 7 in June. In a joint statement this month, the group’s finance ministers said the “initial” price cap would be based on a range of “technical inputs.”Kenny Holston for The New York Times“We are looking at a far more complex oil market,” said Paul Sheldon, a geopolitical risk analyst at S&P Global Platts Analytics. “This is an unprecedented dynamic where you have such a large supplier of oil under unprecedented sanctions. We’re in new territory on several levels.”Exactly how the price cap will be set remains unclear.In a joint statement this month, finance ministers from the Group of 7 said the “initial” price cap would be based on a range of “technical inputs” and decided on by the group of countries that join the agreement. The Treasury Department’s Office of Foreign Assets Control said last week that the price cap would be determined by a “range of factors” and that countries that were part of the price cap coalition would make the decision by consensus. The coalition would be headed by a rotating coordinator from among the countries.A Treasury official said the process for setting the level of the oil price cap would constitute the next phase of the agreement, after technical details about enforcement had been decided and more countries had signed on to the coalition.The State of the WarDramatic Gains for Ukraine: After Ukraine’s offensive in the country’s northeast drove Russian forces into a chaotic retreat, Ukrainian leaders face critical choices on how far to press the attack.In Izium: Following Russia’s retreat, Ukrainian investigators have begun documenting the toll of Russian occupation on the northeastern city. They have already found several burial sites, including one that could hold the remains of more than 400 people.Southern Counteroffensive: Military operations in the south have been a painstaking battle of river crossings, with pontoon bridges as prime targets for both sides. So far, it is Ukraine that has advanced.An Inferno in Mykolaiv: The southern Ukrainian city has been a target of near-incessant shelling since the war began. Firefighters are risking their lives to save as much of it as possible.As U.S. officials think about setting the price cap, they are focused on two numbers: Russia’s cost of producing oil and the price that the commodity historically fetched on global markets before the war in Ukraine sent prices higher.The Biden administration realizes that Russia will not have an incentive to keep producing oil if a cap is set so low that Russia cannot sell it for more than it costs to pump it. However, setting the cap too high will allow Russia to benefit from the upheaval it has caused and blunt the cap’s ability to sufficiently curtail Russia’s oil export revenues.Before the war and the pandemic, Russian crude, known as Urals, typically sold for between $55 and $65 a barrel. Determining Russia’s cost of production is more complicated because some of its wells are more expensive to operate than others. Most estimates are around $40 per barrel.The price cap could settle somewhere among those numbers.Officials are also discussing whether shipping costs should be included in the cap or if it should just include the oil itself. Separate caps would be enacted for Russia’s refined oil products, such as gas oil and fuel oil, that are used for operating machinery and heating homes.A tanker with imported crude oil in China. The Biden administration hopes that even if China does not formally participate in the price cap the country will use it as leverage to negotiate lower prices with Russia.Agence France-Presse — Getty ImagesOil prices have hovered around $90 a barrel in recent weeks. Russian oil is currently selling at a discount of about 30 percent. Some analysts believe that designing the cap as a mandated level below global benchmark prices could be more effective since oil prices can swing sharply.“If you fix it at a certain level, that could create some risks because the market can fluctuate,” said Ben Cahill, a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies, who noted that oil prices could fall below the cap level if it was set too high.“To increase the economic pain on Russia, you want to make the capped price substantially lower than the global average,” he said.As of now, the Treasury Department does not appear to support such an idea. The United States intends for the cap to be a fixed price — one that would be regularly reviewed and could be changed if the countries in the pact agreed to do so. The frequency of the reviews would depend on market volatility. Setting the cap at a discounted rate would introduce additional complexity and compliance burdens, the Treasury official said, because the cap rate could change hourly.Making sure the price cap is adhered to is another hurdle. Treasury Department officials have been holding discussions with banks and maritime insurers to develop a system in which buyers of Russian oil products would “attest” to the price that they had paid, releasing providers of financial services of the responsibility for violations of the cap.In its guidance last week, the Treasury Department said service providers for seaborne Russian oil would not face sanctions as long as they obtained documentation certifying that the cap was being honored. However, it did warn that buyers who knowingly made oil purchases above the price cap using insurance that was subject to the ban “may be a target for a sanctions enforcement action.”The impact of a price cap on global markets is difficult to predict. Mr. Cahill suggested that it could essentially create three tiers of crude, with some Russian oil being sold at the capped price, other Russian oil being sold illicitly or with alternative forms of financing and non-Russian oil being sold by other oil-producing nations.It is not clear how many countries beyond the Group of 7 will join the agreement. The Biden administration is hopeful that even if countries such as China and India do not formally participate they will use it as leverage to negotiate lower prices with Russia.Besides the oil cap’s price, the other big wild card is Russia’s response to it. Russian officials have said they will not sell oil to countries that are part of the price cap coalition, and analysts expect that the country will do its best to fan the volatility with some form of retaliation.The United States hopes that economic logic will prevail and that oil will keep flowing, albeit at a cheaper price.“Russia may bluster and say they won’t sell below the capped price, but the economics of holding back oil just don’t make sense,” Wally Adeyemo, the deputy Treasury secretary, said at a Brookings Institution event last week. “The price cap creates a clear economic incentive to sell under the cap.”Edward Fishman, a senior research scholar at the Center on Global Energy Policy at Columbia University, argued that the price cap could work because the incentives that it would create aligned most buyers, sellers and facilitators of oil transactions toward compliance. He suggested that global oil prices could end up organically gravitating toward the level of the price cap.However, Mr. Fishman acknowledged that Russia and its president, Vladimir V. Putin, might read the incentives differently.“There’s always a sliver of a doubt in people’s minds about Putin’s rationality and his willingness to set the global economy, and his own economy, ablaze in order to make a point,” Mr. Fishman said. More

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    Price Cap on Russian Oil Wins Backing of G7 Ministers

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    The proposal aims to stabilize unsettled energy markets in the wake of Russia’s invasion of Ukraine. But it faces considerable obstacles.WASHINGTON — Top officials from the world’s leading advanced economies agreed on Friday to move ahead with a plan to cap the price of Russian oil, accelerating an ambitious effort to limit how much money Russia can earn from each barrel of crude it sells on the global market.Finance ministers from the Group of 7 nations said they were firming up details of a price cap, with the aim of both depressing the price of global oil and reducing critical revenue that President Vladimir V. Putin is relying on to finance Russia’s war effort in Ukraine. The untested plan has been pushed by the Biden administration as way of keeping sanctions pressure on Russia while minimizing the impact on a global economy that has been saddled with soaring energy and food prices this year.Hours after the G7 ministers announced their plan on Friday, Gazprom, the Russian-owned energy giant, said it would postpone restarting the flow of natural gas through a closely watched pipeline that connects Russia to Germany, known as Nord Stream 1. The unexpected delay was attributed to mechanical problems with the pipeline, but it raised concerns that it was in retaliation for the price cap, an idea that Moscow has condemned.Eric Mamer, a spokesman for the European Commission, said that the “fallacious pretenses” for the latest delay were “proof of Russia’s cynicism.”The price cap still has many hurdles to clear before it can take effect, but its goal is to keep Russian oil flowing to global markets that depend on those supplies, while substantially reducing the profit Moscow reaps from its sales. Europe still consumes nearly two million barrels of Russian oil a day, though its imports have fallen since the war began, and the European Union is preparing to wean itself off those supplies by the end of the year.Officials are racing to put the price-cap plan in place by early December to try to limit the economic fallout from the new E.U. sanctions. They would ban nearly all Russian oil imports to the European Union and block the insurance and financing of Russian oil shipments.The Biden administration has become concerned that those moves could send energy prices skyrocketing and potentially tip the global economy into a recession if millions of barrels of Russian oil were suddenly yanked off the global market, drastically reducing the world’s supply of crude. U.S. administration officials have estimated that oil could soar to $200 a barrel or higher unless efforts to impose the price cap are successful.The initiative is a novel attempt to blunt the global economic impact of the invasion. Oil prices rose as fears of confrontation grew a year ago, and spiked when Russian troops entered Ukraine in February. They have receded in recent months, in part because much of Europe has tipped into recession, reducing global oil demand.Whether the price cap can work will hinge on a variety of factors, including securing agreement by all 27 E.U. member states and determining how the actual price would be set. Maritime insurers, which are critical to making the plan work, would also have to figure out how to comply in a way that allows them to continue insuring Russian oil cargo without running afoul of sanctions.The industry, which would be responsible for making sure that oil buyers and sellers were honoring the price cap, has warned that insurers lack the capacity to police the transactions. Financial services in Europe undergird international energy shipments around the world, and fully blocking their ability to deal with Russian oil could disrupt exports globally, even to countries that have not adopted Russian oil embargoes.The G7 finance ministers said in their statement that they intended to use a “record-keeping and attestation model” to track of whether oil transactions were below the price ceiling, and that they would try to minimize the administrative burden on insurers.A tanker at a crude oil terminal near Nakhodka. Maritime insurers would have to figure out how to comply with a cap in a way that allows them to continue covering Russian oil cargo.Tatiana Meel/ReutersRachel Ziemba, an adjunct senior fellow at the Center for a New American Security, said the agreement unveiled on Friday raised more questions than answers and suggested a challenging path ahead.“This sounds like something that is very technical and technocratic that is going to be hard to monitor and fully enforce,” Ms. Ziemba said.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More

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    Seizing Russian Assets to Help Ukraine Sets Off White House Debate

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    WASHINGTON — The devastation in Ukraine brought on by Russia’s war has leaders around the world calling for seizing more than $300 billion of Russian central bank assets and handing the funds to Ukraine to help rebuild the country.But the movement, which has gained momentum in parts of Europe, has run into resistance in the United States. Top Biden administration officials warned that diverting those funds could be illegal and discourage other countries from relying on the United States as a haven for investment.The cost to rebuild Ukraine is expected to be significant. Its president, Volodymyr Zelensky, estimated this month that it could be $600 billion after months of artillery, missile and tank attacks — meaning that even if all of Russia’s central bank assets abroad were seized, they would cover only half the costs.In a joint statement last week, finance ministers from Estonia, Latvia, Lithuania and Slovakia urged the European Union to create a way to fund the rebuilding of cities and towns in Ukraine with frozen Russian central bank assets, so that Russia can be “held accountable for its actions and pay for the damage caused.”Confiscating the Russian assets was also a central topic at a gathering of top economic officials from the Group of 7 nations at a meeting this month, with the idea drawing public support from Germany and Canada.The United States, which has led a global effort to isolate Russia with stiff sanctions, has been far more cautious in this case. Internally, the Biden administration has been debating whether to join an effort to seize the assets, which include dollars and euros that Moscow deposited before its invasion of Ukraine. Only a fraction of the funds are kept in the United States; much of it was deposited in Europe, including at the Bank for International Settlements in Switzerland.Russia had hoped that keeping more than $600 billion in central bank reserves would help bolster its economy against sanctions. But it made the mistake of sending half those funds out of the country. By all accounts, Russian officials were stunned at the speed at which they were frozen — a very different reaction from the one it faced after annexing Crimea in 2014, when it took a year for weak sanctions to be imposed.Those funds have been frozen for the past three months, keeping the government of President Vladimir V. Putin from repatriating the money or spending it on the war. But seizing or actually taking ownership of them is another matter.At a news conference in Germany this month, Treasury Secretary Janet L. Yellen appeared to close the door on the United States’ ability to participate in any effort to seize and redistribute those assets. Ms. Yellen, a former central banker who initially had reservations about immobilizing the assets, said that while the concept was being studied, she believed that seizing the funds would violate U.S. law.Treasury Secretary Janet L. Yellen has cautioned against seizing Russian central bank assets to help pay for Ukraine’s reconstruction.Ina Fassbender/Agence France-Presse — Getty Images“I think it’s very natural that given the enormous destruction in Ukraine and huge rebuilding costs that they will face, that we will look to Russia to help pay at least a portion of the price that will be involved,” she said. “It’s not something that is legally permissible in the United States.”But within the Biden administration, one official said, there was reluctance “to have any daylight between us and the Europeans on sanctions.” So the United States is seeking to find some kind of common ground while analyzing whether a seizure of central bank funds might, for example, encourage other countries to put their central bank reserves in other currencies and keep it out of American hands.In addition to the legal obstacles, Ms. Yellen and others have argued that it could make nations reluctant to keep their reserves in dollars, for fear that in future conflicts the United States and its allies would confiscate the funds. Some national security officials in the Biden administration say they are concerned that if negotiations between Ukraine and Russia begin, there would be no way to offer significant sanctions relief to Moscow once the reserves have been drained from its overseas accounts.Treasury officials suggested before Ms. Yellen’s comments that the United States had not settled on a firm position about the fate of the assets. Several senior officials, speaking on the condition of anonymity to discuss internal debates in the Biden administration, suggested that no final decision had been made. One official said that while seizing the funds to pay for reconstruction would be satisfying and warranted, the precedent it would set — and its potential effect on the United States’ status as the world’s safest place to leave assets — was a deep concern.In explaining Ms. Yellen’s comments, a Treasury spokeswoman pointed to the International Emergency Economic Powers Act of 1977, which says that the United States can confiscate foreign property if the president determines that the country is under attack or “engaged in armed hostilities.”Legal scholars have expressed differing views about that reading of the law.Laurence H. Tribe, an emeritus law professor at Harvard University, pointed out that an amendment to International Emergency Economic Powers Act that passed after the Sept. 11, 2001, terrorist attacks gives the president broader discretion to determine if a foreign threat warrants confiscation of assets. President Biden could cite Russian cyberattacks against the United States to justify liquidating the central bank reserves, Mr. Tribe said, adding that the Treasury Department was misreading the law.“If Secretary Yellen believes this is illegal, I think she’s flatly wrong,” he said. “It may be that they are blending legal questions with their policy concerns.”Mr. Tribe pointed to recent cases of the United States confiscating and redistributing assets from Afghanistan, Iran and Venezuela as precedents that showed Russia’s assets did not deserve special safeguards.Russia-Ukraine War: Key DevelopmentsCard 1 of 4On the ground. More

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    Economic Headwinds Mount as Leaders Weigh Costs of Confronting Russia

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    BRUSSELS — The world economy is heading into a potentially grim period as rising costs, shortages of food and other commodities and Russia’s continuing invasion of Ukraine threaten to slow economic growth and bring about a painful global slump.Two years after the coronavirus pandemic emerged and left much of the globe in a state of paralysis, policymakers are grappling with ongoing challenges, including clogged supply chains, lockdowns in China and the prospect of an energy crisis as nations wean themselves off Russian oil and gas. Those colliding forces have some economists starting to worry about a global recession as different corners of the world find their economies battered by events.Finding ways to avoid a global slowdown while continuing to exert pressure on Russia for its war in Ukraine will be the primary focus of finance ministers from the Group of 7 nations who are convening in Bonn, Germany, this week.The economic challenges that governments around the globe are facing could begin to chip away at the united front that Western nations have maintained in confronting Russia’s aggression, including sweeping sanctions aimed at crippling its economy and efforts to reduce reliance on Russian energy.Policymakers are balancing delicate trade-offs as they consider how to isolate Russia, support Ukraine and keep their own economies afloat at a moment when prices are rising rapidly and growth is slowing.Central banks around the world are beginning to raise interest rates to help tame rapid inflation, moves that will temper economic growth by raising borrowing costs and could lead to higher unemployment.Global growth is expected to slow to 3.6 percent this year, the International Monetary Fund projected in April, down from the 4.4 percent it forecast before both Russia’s invasion of Ukraine and China’s zero-Covid lockdowns.On Monday, the European Commission released its own revised economic forecast, showing a slowdown in growth to 2.7 percent this year from the 4 percent estimated in its winter report. At the same time, inflation is hitting record levels and is expected to average 6.8 percent for the year. Some Eastern European countries are in for much steeper increases, with Poland, Estonia, the Czech Republic, Bulgaria and Lithuania all facing inflation rates in excess of 11 percent.Last week, Christine Lagarde, president of the European Central Bank, signaled a possible increase in interest rates in July, the first such move in more than a decade. In a speech in Slovenia, Ms. Lagarde compared Europe to a man “who from fate receives blow on blow.”Eswar Prasad, the former head of the International Monetary Fund’s China division, summed up the challenges facing the G7 nations, saying that its “policymakers are caught in the bind that any tightening of screws on Russia by limiting energy purchases worsens inflation and hurts growth in their economies.”“Such sanctions, for all the moral justification underpinning them, are exacting an increasingly heavy economic toll that in turn could have domestic political consequences for G7 leaders,” he added.Still, the United States is expected to press its allies to continue isolating Russia and to deliver more economic aid to Ukraine despite their own economic troubles. Officials are also expected to discuss the merits of imposing tariffs on Russian energy exports ahead of a proposed European oil embargo that the United States fears could send prices skyrocketing by limiting supplies. Policymakers will also discuss whether to press countries such as India to roll back export restrictions on crucial food products that are worsening already high prices.Against this backdrop is the growing urgency to help sustain Ukraine’s economy, which the International Monetary Fund has said needs an estimated $5 billion a month in aid to keep government operations running. The U.S. Congress is close to passing a $40 billion aid package for Ukraine that will cover some of these costs, but Treasury Secretary Janet L. Yellen has called on her European counterparts to provide more financial help.Finance ministers are expected to consider other measures for providing Ukraine with relief. There is increasing interest in the idea of seizing some of the approximately $300 billion in Russian central bank reserves that the United States and its allies have immobilized and using that money to help fund Ukraine’s reconstruction. Treasury Department officials are considering the idea, but they have trepidations about the legality of such a move and the possibility that it would raise doubts about the United States as a safe place to store assets.Ahead of the G7 meeting this week, American officials saw the economic challenges facing Europe firsthand. During a stop to meet with top officials in Warsaw on Monday, Ms. Yellen acknowledged the toll that the conflict in Ukraine is having on the economy of Poland, where officials have raised interest rates sharply to combat inflation. Poland has absorbed more than three million Ukrainian refugees and has faced a cutoff in gas exports from Russia.“They have to deal with a tighter monetary policy just as countries around the world and the United States are,” Ms. Yellen told reporters. “At a time when Poland is committed to large expenditures to shore up its security, it is a difficult balancing act.”A downturn may be unavoidable in some countries, and economists are weighing multiple factors as they gauge the likelihood of a recession, including a severe slowdown in China related to continuing Covid lockdowns.The European Commission, in its economic report, said the E.U. “is first in line among advanced economies to take a hit,” because of its proximity to Ukraine and its dependence on Russian energy. At the same time, it has absorbed more than five million refugees in less than three months.Deutsche Bank analysts said this week that they thought a recession in Europe was unlikely. By contrast, Carl B. Weinberg, chief economist at High Frequency Economics, warned in a note on Monday that with consumer demand and output falling, “Germany’s economy is headed for recession.” Analysts at Capital Economics predicted that Germany, Italy and Britain are likely to face recessions, meaning there is a “reasonable chance” that the broader eurozone will also face one, defined as two consecutive quarters of falling output.Vicky Redwood, senior economic adviser at Capital Economics, warned that more aggressive interest rate increases by central banks could lead to a global contraction.“If inflation expectations and inflation prove more stubborn than we expect, and interest rates need to rise further as a result, then a recession most probably will be on the cards,” Ms. Redwood wrote in a note to clients this week.A bakery in Al Hasakah, Syria. The interruption of wheat exports from Ukraine and Russia is causing food prices to spiral and increasing global hunger, particularly in Africa and the Middle East.Diego Ibarra Sanchez for The New York TimesThe major culprit is energy prices. In Germany, which has been most dependent on Russian fuel among the major economies in Europe, the squeeze is being acutely felt by its industrial-heavy business sector as well as consumers.Russian gas shipments “underpin the competitiveness of our industry,” Martin Brudermüller, the chief executive of the chemical giant BASF, said at the company’s annual general meeting last month.While calling to decrease its dependence, Mr. Brudermüller nevertheless warned that “if the natural gas supply from Russia were to suddenly stop, it would cause irreversible economic damage” and possibly force a stop in production.Russia-Ukraine War: Key DevelopmentsCard 1 of 4In Mariupol. 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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