Israel-Gaza War (2023- )

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    Risk of a Wider Middle East War Threatens a ‘Fragile’ World Economy

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    After shocks from the pandemic and Russia’s invasion of Ukraine, there’s little cushion if the fighting between Hamas and Israel becomes a regional conflict.Fears that Israel’s expanding military operations in Gaza could escalate into a regional conflict are clouding the global economy’s outlook, threatening to dampen growth and reignite a rise in energy and food prices.Rich and poor nations were just beginning to catch their breath after a three-year string of economic shocks that included the Covid-19 pandemic and Russia’s invasion of Ukraine. Stinging inflation has been dropping, oil prices have stabilized and predicted recessions have been avoided.Now, some leading international financial institutions and private investors warn that the fragile recovery could turn bad.“This is the first time that we’ve had two energy shocks at the same time,” said Indermit Gill, chief economist at the World Bank, referring to the impact of the wars in Ukraine and the Middle East on oil and gas prices.Those price increases not only chip away at the buying power of families and companies but also push up the cost of food production, adding to high levels of food insecurity, particularly in developing countries like Egypt, Pakistan and Sri Lanka.As it is, nations are already struggling with unusually high levels of debt, limp private investment and the slowest recovery in trade in five decades, making it tougher for them to grow their way out of the crisis. Higher interest rates, the result of central bank efforts to tame inflation, have made it more difficult for governments and private companies to get access to credit and stave off default.Israeli soldiers surveying destruction in Kfar Azza, a community near the Gaza border that Hamas militants raided last month.Tamir Kalifa for The New York Times“All of these things are happening all at the same time,” Mr. Gill said. “We are in one of the most fragile junctures for the world economy.”Mr. Gill’s assessment echoes those of other analysts. Jamie Dimon, the chief executive of JPMorgan Chase, said last month that “this may be the most dangerous time the world has seen in decades,” and described the conflict in Gaza as “the highest and most important thing for the Western world.”The recent economic troubles have been fueled by deepening geopolitical conflicts that span continents. Tensions between the United States and China over technology transfers and security only complicate efforts to work together on other problems like climate change, debt relief or violent regional conflicts.The overriding political preoccupations also mean that traditional monetary and fiscal tools like adjusting interest rates or government spending may be less effective.The brutal fighting between Israel and Hamas has already taken the lives of thousands of civilians and inflicted wrenching misery on both sides. If the conflict stays contained, though, the ripple effects on the world economy are likely to remain limited, most analysts agree.Jerome H. Powell, the Federal Reserve chair, said on Wednesday that “it isn’t clear at this point that the conflict in the Middle East is on track to have significant economic effects” on the United States, but he added, “That doesn’t mean it isn’t incredibly important.”Mideast oil producers do not dominate the market the way they did in the 1970s, when Arab nations drastically cut production and imposed an embargo on the United States and some other countries after a coalition led by Egypt and Syria attacked Israel.At the moment, the United States is the world’s largest oil producer, and alternative and renewable energy sources make up a bit more of the world’s energy mix.“It’s a highly volatile, uncertain, scary situation,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University. But there is “a recognition among most of the parties, the U.S., Europe, Iran, other gulf countries,” he continued, referring to the Persian Gulf, “that it’s in no one’s interest for this conflict to significantly expand beyond Israel and Gaza.”Mr. Bordoff added that missteps, poor communication and misunderstandings, however, could push countries to escalate even if they didn’t want to.And a significant and sustained drop in the global supply of oil — whatever the reasons — could simultaneously slow growth and inflame inflation, a cursed combination known as stagflation.Women buying and selling grain in Yola, Nigeria. The aftereffects of the pandemic have stunted growth in emerging markets like Nigeria.Finbarr O’Reilly for The New York TimesGregory Daco, chief economist at EY-Parthenon, said a worst-case scenario in which the war broadened could cause oil prices to spike to $150 a barrel, from about $85 currently. “The global economic consequences of this scenario are severe,” he warned, citing a mild recession, a plunge in stock prices and a loss of $2 trillion for the global economy.The prevailing mood now is uncertainty, which is weighing on investment decisions and could discourage businesses from expanding into emerging markets. Borrowing costs have soared, and companies in several countries, from Brazil to China, are expected to have trouble refinancing their debt.At the same time, emerging markets like Egypt, Nigeria and Hungary have experienced some of the worst scarring from the pandemic, according to Oxford Economics, a consulting firm, resulting in lower growth than had been projected.Conflict in the Middle East as well as economic strains could also increase the stream of migrants heading to Europe from that region and North Africa. The European Union, which is teetering on the brink of a recession, is in the middle of negotiations with Egypt over increasing financial aid and controlling migration.China, which gets half its oil imports from the Persian Gulf, is struggling with a collapse in the real estate market and its weakest growth is nearly three decades.By contrast, the United States has confounded forecasters with its strong growth. From July through September, the economy grew at an annual rate of just a shade under 5 percent, buoyed by slowing inflation, stockpiled savings and robust hiring.India, backed by enthusiastic consumers, is on track to perform well next, with estimated growth of 6.3 percent.A natural gas pipeline terminal in Ashkelon, Israel, in 2017. When it comes to energy markets, events in the Middle East “will not stay in the Middle East,” said M. Ayhan Kose, a World Bank economist.Tamir Kalifa for The New York TimesThe region with the gloomiest prospects is sub-Saharan Africa, where, even before fighting broke out in Israel and Gaza, total output this year was estimated to fall 3.3 percent. Incomes in the region have not increased since 2014, when oil prices crashed, said M. Ayhan Kose, who oversees the World Bank’s annual Global Economic Prospects report.“Sub-Saharan Africa has already experienced a lost decade,” Mr. Kose said in an interview. Now “think about another lost decade.”As far as energy markets are concerned, something that “happens in the Middle East will not stay in the Middle East,” he added. “It will have global implications.” More

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    What to Watch for as the Federal Reserve Meets This Week

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    Central bankers are expected to leave interest rates steady at a 22-year high of 5.25 to 5.5 percent. Investors are looking for hints at what’s next.Federal Reserve officials are widely expected to leave interest rates steady at the conclusion of their two-day meeting on Wednesday. But investors and economists will watch for any hint about whether rates are likely to stay that way — or whether central bankers still think they might need to increase them again in the coming months.Officials will release a statement announcing their policy decision at 2 p.m., followed by a news conference with Jerome H. Powell, the Fed chair, at 2:30 p.m. Both will offer policymakers a chance to signal what they think might come next for interest rates and the economy.Central bankers have already raised interest rates to a range of 5.25 to 5.5 percent in a push to tame inflation. That rate setting is up from near-zero as recently as early 2022, and is the highest level in 22 years.Higher borrowing costs are meant to make it more expensive to buy a home, purchase a car or expand a business using a loan. By tapping the brakes on demand and hiring, that slows the broader economy, which can help to put a lid on price increases.Fed officials have widely signaled that they are close to the point where they no longer need to raise interest rates — simply leaving them around this level will cool the economy and help drive inflation back down to their 2 percent goal over time. The question now is twofold: Will policymakers feel it necessary to make one more quarter-point interest-rate move later this year or early next? And once they decide that rates are high enough, how long will they leave them elevated?Here’s what to watch for on Wednesday.Jerome Powell, the Federal Reserve chair, said in that “at the margin” the recent tightening in financial conditions could reduce the need for further tightening, “though that remains to be seen.”Michelle V. Agins/The New York TimesThe Fed’s language will be in focus.Central bankers will first release their standard monetary policy statement, and markets will carefully watch to see if officials make any changes that suggest they are done raising interest rates.Last time, officials said that “in determining the extent of additional policy firming that may be appropriate,” they would contemplate incoming economic data. If they softened that language to make further policy moves sound less likely, it would be notable.But investors may not find much else to parse in this release. Fed officials will not release fresh quarterly economic projections again until December. Given that, traders will have to watch Mr. Powell’s news conference for more details about what comes next.Recent market moves could be critical.As of the Fed’s latest economic forecasts in September, officials still thought that one more rate increase in 2023 might be appropriate.But something critical has changed in the intervening weeks.Long-term interest rates have climbed notably in markets since the Fed gathered on Sept. 19-20. While central bankers directly set short-term interest rates, longer-term borrowing costs often adjust only at a delay — and the recent jump is making everything from mortgages to business loans much more expensive.That could help slow the economy, doing some of the Fed’s work for it. And some economists think in light of that, central bankers will no longer see a need for another rate increase.Mr. Powell, during a question-and-answer session on Oct. 19, said that “at the margin” the recent tightening in financial conditions could reduce the need for further tightening, “though that remains to be seen.”“I took it to mean that perhaps there isn’t as much urgency to raise interest rates further,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. She said that she didn’t expect officials to rule out another move, but “they need to manage a broad range of risks right now.”If consumer spending remains so strong that companies feel they can raise prices without scaring away customers, it could make it tough to fully wrestle inflation back down to 2 percent.Amir Hamja/The New York TimesStrong consumer spending may keep officials alert.While the Fed is dealing with the possibility that higher market-based interest rates will weigh on the economy, they are also confronting another potential challenge: Economic data have remained surprisingly strong in recent months.On one level, this is good news. Consumers are shopping and companies are hiring at a rapid clip in spite of higher interest rates, and that resilience has come at a time when inflation has moderated substantially. The Fed’s favorite inflation gauge has slowed to 3.4 percent, down from 7.1 percent at its peak in summer 2022.But if consumer spending remains so strong that companies feel they can raise prices without scaring away customers, that could make it tough to fully wrestle inflation back down to 2 percent.That’s why policymakers at the Fed are watching the continued strength closely — and trying to decide whether it suggests that further interest rate increases are needed.Timing is a big question.Officials may decide that they simply need more time to watch economic trends play out.Holding off on further rate moves in November — and possibly beyond — could give officials a chance to see if growth and consumer spending slow in the way companies have been warning they could.Plus, keeping rates on pause will give officials more time to see how looming geopolitical risks shape up. The war between Israel and Hamas could affect the economy in hard-to-predict ways. If it escalates into a regional war, it could shake consumer confidence. But a wider conflict could also cause oil prices to pop, pushing up inflation.At the same time, officials won’t want to fully rule out a future move at a time when market rates could fall, risks could fade and growth could remain quick.“Maintaining optionality makes a lot of sense in the current context,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.Wall Street is divided over what will come next. Investors see about a one-in-four chance of a rate move at the Fed’s final 2023 meeting, which takes place on Dec. 13. They see a slightly higher — but far from guaranteed — chance of a move in early 2024.“Nobody is feeling a high degree of confidence about the economic outlook right now,” Ms. Uruci said. More

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    Middle East War Could Cause Oil Price Shock, World Bank Warns

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    A major escalation of the war between Israel and Hamas — one that spilled over into a broader Middle East conflict — could send oil prices surging as much as 75 percent, the World Bank warned on Monday.The potential for a global energy shock in the wake of Hamas’s brutal attack on Israel has been a pressing question for economists and policymakers, who have spent the past year trying to combat inflation.Energy prices have remained largely contained since Hamas invaded Israel on Oct. 7. But economists and policymakers have been closely monitoring the trajectory of the war and studying previous conflicts in the region as they try to determine the potential scale of economic repercussions if the current conflict intensifies and broadens across the Middle East.The World Bank’s new study suggests that such a crisis could overlap with energy market disruptions already caused by Russia’s war in Ukraine, exacerbating the economic consequences.“The latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets since the 1970s — Russia’s war with Ukraine,” Indermit Gill, the World Bank’s chief economist and senior vice president for development economics, said in a statement that accompanied the report. “If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades — not just from the war in Ukraine but also from the Middle East.”The World Bank projects that global oil prices, which are currently hovering around $85 per barrel, will average $90 per barrel this quarter. The organization had been projecting them to decline next year, but disruptions to oil supplies could drastically change those forecasts.The bank’s worst-case scenario is pegged to the 1973 Arab oil embargo that took place during the Arab-Israeli war. A disruption of that severity could remove as much as eight millions barrels of oil per day off the market and send prices as high as $157 per barrel.A less severe, but still disruptive, outcome would be if the war plays out as the 2003 war in Iraq, with oil supply being reduced by five million barrels per day and prices rising as much as 35 percent, to $121 a barrel.A more modest outcome would be if the conflict parallels the 2011 civil war in Libya, with two million barrels per day of oil lost from global markets and prices rising as much as 13 percent, to $102 per barrel.World Bank officials cautioned that the effects on inflation and the global economy would depend on the duration of the conflict and how long oil prices remained elevated. They said that if higher oil prices are sustained, however, that would lead to higher prices for food, industrial metals and gold.The United States and Europe have been trying to keep global oil prices from spiking in the wake of Russia’s invasion of Ukraine. Western nations introduced a price cap on Russia’s energy exports, a move aimed at limiting Moscow’s oil revenues while ensuring oil supply continued to flow.The Biden administration also tapped its Strategic Petroleum Reserve to ease oil price pressures. A senior administration official told The New York Times last week that President Biden could authorize a new round of releases from the nation’s Strategic Petroleum Reserve, an emergency stockpile of crude oil that is stored in underground salt caverns near the Gulf of Mexico.Biden administration officials have publicly downplayed their concerns about the economic impact of the conflict, saying it was too soon to predict the fallout. Treasury Secretary Janet L. Yellen noted at a Bloomberg News event last week that oil prices had so far been generally flat and that she had not yet seen signs that the war was having global economic consequences.“What could happen if the war expands?” Ms. Yellen said. “Of course there could be more meaningful consequences.” More

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    Biden Seeks to Tame Oil Prices if Mideast Conflict Sends Them Soaring

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    The president has previously drawn down the Strategic Petroleum Reserve to ease price pressures, but that could be more difficult nowBiden administration officials, worried that a growing conflict in the Middle East could send global oil prices soaring, are looking for ways to hold down American gasoline prices if such a jump occurs.Those efforts include discussions with large oil-producing nations like Saudi Arabia that are holding back supply and with American oil producers that have the ability to pump more than they already are producing, administration officials say.A senior administration official said in an interview that it was also possible that President Biden could authorize a new round of releases from the nation’s Strategic Petroleum Reserve, an emergency stockpile of crude oil that is stored in underground salt caverns near the Gulf of Mexico. Mr. Biden tapped the reserve aggressively last year after Russia’s invasion of Ukraine sent oil prices skyrocketing, leaving the amount of oil in those reserves at historically low levels.The conflict in the Middle East has not yet sent oil prices surging. A barrel of Brent crude oil was trading for about $88 on global markets on Wednesday. That was up from about $84 earlier this month, shortly before Hamas attacked Israel and rattled markets. But analysts and administration officials fear prices could rise significantly more if the conflict in Israel spreads, restricting the flow of oil out of Iran or other major producers in the region.So far, American drivers have not felt a pinch. The average price of gasoline nationally was $3.54 a gallon on Wednesday, according to AAA. That was down about 30 cents from a month ago and 25 cents from the same day last year.Administration officials are wary of the possibility that prices could again jump above $5 a gallon, a level they briefly touched in the spring of 2022. Mr. Biden took extraordinary efforts then to help bring prices down — but those steps are likely to be far less effective in the event of a new oil shock.“They succeeded last year in the second half, but this year I think they’ve kind of run out of bullets,” said Amrita Sen, director of research at Energy Aspects.In part that’s because the administration did not refill the strategic reserve more aggressively when prices were lower, Ms. Sen said. That could undercut its ability to counteract rising prices now.“They got a little overconfident that prices would stay low,” she said. “In some ways, they’ve missed the boat.”

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    Crude oil in the strategic petroleum reserve
    Note: Levels are as of end of each week.Source: Energy Information AdministrationBy The New York TimesMr. Biden released a record 180 million barrels of oil from the strategic reserve, flooding the market with additional supply. His administration replenished just six million barrels when prices dipped this year, leaving the reserve at its lowest level since the 1980s. The Energy Department announced plans last week to continue refilling in the months ahead, but only if prices drop below $79 a barrel.Administration officials insist that tapping the reserve again remains an option. It still holds more than 350 million barrels of oil. That’s more than enough to counteract a disruption in oil markets if one occurs, energy analysts say.The U.S. economy is also less vulnerable to a price spike than in previous decades because the country has become less dependent on foreign oil. The United States produced more than 400 million barrels of oil in July, a record.

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    Monthly U.S. crude oil production
    Source: Energy Information AdministrationBy The New York Times“There’s still a lot of oil in the U.S. strategic reserve, and the U.S. is not in this alone,” said Richard Newell, president and chief executive of Resources for the Future, an energy-focused think tank. He noted that other countries had their own strategic reserves.Still, with Mr. Biden already taking criticism from Republicans for depleting the stockpile, he may be reluctant to tap it again now. “There’s another arrow in the quiver, but there’s only so many arrows right now,” said Jim Burkhard, head of energy markets research for S&P Global Commodity Insights. “Could they repeat it? Yes, but then you’re left with much, much less oil.”The stakes for Mr. Biden are high. Voters often punish presidents for high gasoline prices, and the challenge is amplified for Mr. Biden because, unlike most presidents, he has leaned into his role — intervening aggressively when prices soared early last year, and then claiming credit when prices fell.Independent experts say Mr. Biden is justified in claiming some credit for the moderation in prices last year, though they say other factors — including weaker-than-expected Chinese oil demand — also played a major role.The initial jump in oil prices was driven not by an actual shortage of oil but by a fear of one: Investors worried that millions of barrels of Russian oil would be blocked from the international market, either as a result of Western sanctions or Russian retaliation.Worried that the growing conflict in the Middle East could send oil prices soaring, Biden officials are looking for ways to hold down gasoline prices.Mark Abramson for The New York TimesMr. Biden’s decision to release oil from the strategic reserve provided additional supply at a crucial moment, helping to calm markets and push prices down.Analysts worried that additional sanctions from Europe, which were set to take effect near the end of 2022, would cause a second surge in prices by knocking more Russian supply offline. The Biden administration worked to prevent that by leading an international effort to impose a price cap on Russia that allowed the country to keep exporting oil — but only at reduced prices.That effort has worked to keep Russian oil flowing to markets and avoid a supply shock. In the first half of this year, it also appeared to be denting Moscow’s oil revenues. Increasingly, Russia has found ways around the price cap, forcing administration officials to take steps this month to crack down on enforcement of the cap in hopes of reducing the price at which Russian oil is sold.There is some risk that those enforcement efforts could at least temporarily knock Russian supply off the market at a tenuous time for global oil supply. But more important for the administration, there is little chance that a similar sort of price cap could help keep supply flowing from a large oil producer that could be involved in a widening war in the Middle East — most notably, Iran.Last October, the White House announced that it would enter into contracts to buy oil for the strategic reserve when prices fell below $72 a barrel. Doing so, the administration argued, would not just replenish the reserve but encourage domestic production by guaranteeing demand for oil at a reasonable price. But the effort has gotten off to a fitful start.Rory Johnston, an oil market analyst, said that the administration had been admirably creative in its energy policy, but that its execution had been flawed. Investors, he said, have been left skeptical about the administration’s ability to execute its strategy on refiling the reserve. They are also wondering if Mr. Biden will ever be willing to risk the political hit from driving up oil prices, by buying supply and pulling it off the market to refill the reserve.“If you want to be cynical, they’re very keen to do the price downside stuff and understandably not as keen to do the things that could seen as lifting prices,” Mr. Johnston said. More

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    Powell Says Strong Economic Data ‘Could Warrant’ Higher Rates

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    The Federal Reserve may need to do more if growth remains hot or if the labor market stops cooling, Jerome H. Powell said in a speech.Jerome H. Powell, the chair of the Federal Reserve, reiterated the central bank’s commitment to moving forward “carefully” with further rate moves in a speech on Thursday. But he also said that the central bank might need to raise interest rates more if economic data continued to come in hot.Mr. Powell tried to paint a balanced picture of the challenge facing the Fed in remarks before the Economic Club of New York. He emphasized that the Fed is trying to weigh two goals against one another: It wants to wrestle inflation fully under control, but it also wants to avoid doing too much and unnecessarily hurting the economy.Yet this is a complicated moment for the central bank as the economy behaves in surprising ways. Officials have rapidly raised interest rates to a range of 5.25 to 5.5 percent over the past 19 months. Policymakers are now debating whether they need to raise rates one more time in 2023.The higher borrowing costs are supposed to weigh down economic activity — slowing home buying, business expansions and demand of all sorts — in order to cool inflation. But so far, growth has been unexpectedly resilient. Consumers are spending. Companies are hiring. And while wage gains are moderating, overall growth has been robust enough to make some economists question whether the economy is slowing sufficiently to drive inflation back to the Fed’s 2 percent goal.“We are attentive to recent data showing the resilience of economic growth and demand for labor,” Mr. Powell acknowledged on Thursday. “Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.”Mr. Powell called recent growth data a “surprise,” and said that it had come as consumer demand held up much more strongly than had been expected.“It may just be that rates haven’t been high enough for long enough,” he said, later adding that “the evidence is not that policy is too tight right now.”Economists interpreted his remarks to mean that while the Fed is unlikely to raise interest rates at its upcoming meeting, which concludes on Nov. 1, it was leaving the door open to a potential rate increase after that. The Fed’s final meeting of the year concludes on Dec. 13.“It didn’t sound like he was anxious to raise rates again in November,” said Michael Feroli, chief U.S. economist at J.P. Morgan, explaining that he thinks the Fed will depend on data as it decides what to do in December.“He definitely didn’t close the door to further rate hikes,” Mr. Feroli said. “But he didn’t signal anything was imminent, either.”Kathy Bostjancic, chief economist for Nationwide Mutual, said the comments were “balanced, because there is so much uncertainty.”The Fed chair had reasons to keep his options open. While growth has been strong in recent data, the economy could be poised for a more marked slowdown.The Fed has already raised short-term interest rates a lot, and those moves “may” still be trickling out to slow down the economy, Mr. Powell noted. And importantly, long-term interest rates in markets have jumped higher over the past two months, making it much more expensive to borrow to buy a house or a car.Those tougher financial conditions could affect growth, Mr. Powell said.“Financial conditions have tightened significantly in recent months, and longer-term bond yields have been an important driving factor in this tightening,” he said.Mr. Powell pointed to several possible reasons behind the recent increase in long-term rates: Higher growth, high deficits, the Fed’s decision to shrink its own security holdings and technical market factors could all be contributing factors.“There are many candidate ideas, and many people feeling their priors have been confirmed,” Mr. Powell said.He later added that the “bottom line” was the rise in market rates was “something that we’ll be looking at,” and “at the margin, it could” reduce the impetus for the Fed to raise interest rates further.The war between Israel and Gaza — and the accompanying geopolitical tensions — also adds to uncertainty about the global outlook. It remains too early to know how it will affect the economy, though it could undermine confidence among businesses and consumers.“Geopolitical tensions are highly elevated and pose important risks to global economic activity,” Mr. Powell said.Stocks were choppy as Mr. Powell was speaking, suggesting that investors were struggling to understand what his remarks meant for the immediate outlook on interest rates. Higher interest rates tend to be bad news for stock values.The S&P 500 ended almost 1 percent lower for the day. The move came alongside a further rise in crucial market interest rates, with the 10-year Treasury yield rising within a whisker of 5 percent, a threshold it hasn’t broken through since 2007.The Fed chair reiterated the Fed’s commitment to bringing inflation under control even at a complicated moment. Consumer price increases have come down substantially since the summer of 2022, when they peaked around 9 percent. But they remained at 3.7 percent as of last month, still well above the roughly 2 percent that prevailed before the onset of the coronavirus pandemic.“A range of uncertainties, both old ones and new ones, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little,” Mr. Powell said. “Given the uncertainties and risks, and given how far we have come, the committee is proceeding carefully.”Joe Rennison contributed reporting. More

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    Yellen Says U.S. Is Considering New Sanctions on Iran and Hamas

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    Treasury Secretary Janet L. Yellen said on Wednesday that the Israel-Gaza war was a potential concern for the global economy and signaled that additional U.S. sanctions could be coming in response to the attack on Israel by Hamas.Questions about the economic impact of the war were growing as Ms. Yellen offered a forceful defense of Israel and pushed back on the notion that U.S. sanctions against Iran — a key backer of Hamas — have become too lenient. Ms. Yellen said the Treasury Department continued to review its sanctions on Iran, Hamas and Hezbollah, the Lebanese militant group that is also a longtime adversary of Israel.“We have not in any way relaxed our sanctions on Iranian oil,” Ms. Yellen said at a news conference on the sidelines of the annual meetings of the International Monetary Fund and the World Bank in Marrakesh, Morocco. “We have sanctions on Hamas, on Hezbollah, and this is something that we have been constantly looking at and using information as it becomes available to tighten sanctions.”She added: “We will continue to do that.”The Treasury secretary also did not rule out reversing a decision made last month — to unfreeze $6 billion of Iranian funds in exchange for the release of American hostages — if it is determined that Iran was involved in the attack by Hamas.At the time of the exchange, the United States informed Iran that it had transferred about $6 billion in Iranian oil revenue from South Korea to a Qatari bank account. The money is supposed to be used only for food, medicine and other humanitarian goods.“These are funds that are sitting in Qatar that were made available purely for humanitarian purposes, and the funds have not been touched,” Ms. Yellen said, adding: “I wouldn’t take anything off the table in terms of future possible actions.”The crisis in Israel poses a new challenge for the world economy and the Biden administration, which has spent the last year working to combat inflation in the United States and to corral energy prices that have become volatile because of Russia’s war in Ukraine. Another war in the Middle East complicates those efforts by threatening to constrain oil supplies and send prices higher.Ms. Yellen said geopolitical “shocks” continued to pose risks to the world economic outlook.“Of course, the situation in Israel poses additional concerns,” she said.Economic officials across the Biden administration are closely tracking developments in global oil markets this week. Global oil prices jumped on Monday after the terrorist attacks in Israel but were falling slightly on Wednesday. Administration officials are concerned that a sustained increase in the cost of crude could hurt economic growth and dent Mr. Biden’s approval rating, by pushing up the price of gasoline for American drivers.Ms. Yellen said she continued to believe that the U.S. economy could achieve a so-called soft landing — where inflation eases without a recession — but was closely watching for any economic fallout from the new conflict in the Middle East.“While we’re monitoring potential economic impacts from the crisis, I’m not really thinking of that as a major driver of the global economic outlook,” Ms. Yellen said. “We will see what impact it has. Thus far, I don’t think we’ve seen anything suggesting it will be very significant.”International policymakers gathered in Morocco for a week of meetings, as the global economic recovery is losing momentum. The prospect of a new regional conflict gave other policymakers more reason to feel anxious about a sluggish world economy that has been battered by war, a pandemic and inflation in recent years. Central banks around the globe have been raising interest rates to tame rapid inflation, and investors had begun to hope that a recent slowdown in price gains could signal an end to those rate increases.“I think central bank governors are concerned about what might happen to energy prices if the Israel-Gaza conflict were to turn into a bigger regional conflict and have implications for supply of oil on markets,” Gita Gopinath, the first deputy managing director of the I.M.F., said in an interview on Wednesday.Ms. Gopinath added that higher oil prices could elevate prices more broadly, complicating interest rate decisions for central bankers. She suggested that it was too soon to say how the economic impact of the conflict in the Middle East might compare with the effects of the war in Ukraine, but that overlapping crises were a headwind.“The geopolitical risks are certainly piling up in Russia’s invasion of Ukraine and we’re seeing now in Israel and Gaza,” she said.That sentiment was echoed on Wednesday by Ajay Banga, the World Bank president, who said at a news conference that he now expected interest rates to be “higher for longer” despite signs that inflation was cooling.“I believe that wars are completely and extremely challenging for central banks who are trying to find their way out of a very difficult situation,” Mr. Banga said.It is not yet clear what steps the Biden administration would take to contain oil prices if the Israel-Gaza war intensifies or how that might affect its efforts to curb Russia’s oil revenues.Ms. Yellen suggested on Wednesday that the “price cap” policy that the Group of 7 devised last year, which forbids Russia to sell oil over $60 a barrel using Western banking and insurance services, had been successful.“Global energy prices have been largely unchanged while Russia has had to either sell oil at a significant discount or spend huge amounts on its alternative ecosystem,” she said.Jim Tankersley More

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    Fragile Global Economy Faces New Crisis in Israel-Gaza War

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    A war in the Middle East could complicate efforts to contain inflation at a time when world output is “limping along.”The International Monetary Fund said on Tuesday that the pace of the global economic recovery is slowing, a warning that came as a new war in the Middle East threatened to upend a world economy already reeling from several years of overlapping crises.The eruption of fighting between Israel and Hamas over the weekend, which could sow disruption across the region, reflects how challenging it has become to shield economies from increasingly frequent and unpredictable global shocks. The conflict has cast a cloud over a gathering of top economic policymakers in Morocco for the annual meetings of the I.M.F. and the World Bank.Officials who planned to grapple with the lingering economic effects of the pandemic and Russia’s war in Ukraine now face a new crisis.“Economies are at a delicate state,” Ajay Banga, the World Bank president, said in an interview on the sidelines of the annual meetings. “Having war is really not helpful for central banks who are finally trying to find their way to a soft landing,” he said. Mr. Banga was referring to efforts by policymakers in the West to try and cool rapid inflation without triggering a recession.Mr. Banga said that so far, the impact of the Middle East attacks on the world’s economy is more limited than the war in Ukraine. That conflict initially sent oil and food prices soaring, roiling global markets given Russia’s role as a top energy producer and Ukraine’s status as a major exporter of grain and fertilizer.“But if this were to spread in any way then it becomes dangerous,” Mr. Banga added, saying such a development would result in “a crisis of unimaginable proportion.”Oil markets are already jittery. Lucrezia Reichlin, a professor at the London Business School and a former director general of research at the European Central Bank, said, “the main question is what’s going to happen to energy prices.”Ms. Reichlin is concerned that another spike in oil prices would pressure the Federal Reserve and other central banks to further push up interest rates, which she said have risen too far too fast.As far as energy prices, Ms. Reichlin said, “we have two fronts, Russia and now the Middle East.”Smoke rising from bombings of Gaza City and its northern borders by Israeli planes.Samar Abu Elouf for The New York Times Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said it’s too early to assess whether the recent jump in oil prices would be sustained. If they were, he said, research shows that a 10 percent increase in oil prices would weigh down the global economy, reducing output by 0.15 percent and increasing inflation by 0.4 percent next year. In its latest World Economic Outlook, the I.M.F. underscored the fragility of the recovery. It maintained its global growth outlook for this year at 3 percent and slightly lowered its forecast for 2024 to 2.9 percent. Although the I.M.F. upgraded its projection for output in the United States for this year, it downgraded the euro area and China while warning that distress in that nation’s real estate sector is worsening.“We see a global economy that is limping along, and it’s not quite sprinting yet,” Mr. Gourinchas said. In the medium term, “the picture is darker,” he added, citing a series of risks including the likelihood of more large natural disasters caused by climate change.Europe’s economy, in particular, is caught in the middle of growing global tensions. Since Russia invaded Ukraine in February 2022, European governments have frantically scrambled to free themselves from an over-dependence on Russian natural gas.They have largely succeeded by turning, in part, to suppliers in the Middle East.Over the weekend, the European Union swiftly expressed solidarity with Israel and condemned the surprise attack from Hamas, which controls Gaza.Some oil suppliers may take a different view. Algeria, for example, which has increased its exports of natural gas to Italy, criticized Israel for responding with airstrikes on Gaza.Even before the weekend’s events, the energy transition had taken a toll on European economies. In the 20 countries that use the euro, the Fund predicts that growth will slow to just 0.7 percent this year from 3.3 percent in 2022. Germany, Europe’s largest economy, is expected to contract by 0.5 percent.High interest rates, persistent inflation and the aftershocks of spiraling energy prices are also expected to slow growth in Britain to 0.5 percent this year from 4.1 percent in 2022.Sub-Saharan Africa is also caught in the slowdown. Growth is projected to shrink this year by 3.3 percent, although next year’s outlook is brighter, when growth is forecast to be 4 percent.Staggering debt looms over many of these nations. The average debt now amounts to 60 percent of the region’s total output — double what it was a decade ago. Higher interest rates have contributed to soaring repayment costs.This next-generation of sovereign debt crises is playing out in a world that is coming to terms with a reappraisal of global supply chains in addition to growing geopolitical rivalries. Added to the complexities are estimates that within the next decade, trillions of dollars in new financing will be needed to mitigate devastating climate change in developing countries.One of the biggest questions facing policymakers is what impact China’s sluggish economy will have on the rest of the world. The I.M.F. has lowered its growth outlook for China twice this year and said on Tuesday that consumer confidence there is “subdued” and that industrial production is weakening. It warned that countries that are part of the Asian industrial supply chain could be exposed to this loss of momentum.In an interview on her flight to the meetings, Treasury Secretary Janet L. Yellen said that she believes China has the tools to address a “complex set of economic challenges” and that she does not expect its slowdown to weigh on the U.S. economy.“I think they face significant challenges that they have to address,” Ms. Yellen said. “I haven’t seen and don’t expect a spillover onto us.” More