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    Why Are Oil Prices So High and Will They Stay That Way?

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    HOUSTON — Oil prices are increasing, again, casting a shadow over the economy, driving up inflation and eroding consumer confidence.Crude prices rose more than 15 percent in January alone, with the global benchmark price crossing $90 a barrel for the first time in more than seven years, as fears of a Russian invasion of Ukraine grew.Though the summer driving season is still months away, the average price for regular gasoline is fast approaching $3.40 a gallon, roughly a dollar higher than it was a year ago, according to AAA.The Biden administration said in November that it would release 50 million barrels of oil from the nation’s strategic reserves to relieve the pressure on consumers, but the move hasn’t made much of a difference.Many energy analysts predict that oil could soon touch $100 a barrel, even as electric cars become more popular and the coronavirus pandemic persists. Exxon Mobil and other oil companies that only a year ago were considered endangered dinosaurs by some Wall Street analysts are thriving, raking in their biggest profits in years.Why are oil prices suddenly so high?The pandemic depressed energy prices in 2020, even sending the U.S. benchmark oil price below zero for the first time ever. But prices have snapped back faster and more than many analysts had expected in large part because supply has not kept up with demand.Oil prices are at their highest point since 2014.Price of a barrel of Brent crude, the global benchmark, and West Texas Intermediate, the U.S. standard

    Source: FactSetBy The New York TimesWestern oil companies, partly under pressure from investors and environmental activists, are drilling fewer wells than they did before the pandemic to restrain the increase in supply. Industry executives say they are trying not to make the same mistake they made in the past when they pumped too much oil when prices were high, leading to a collapse in prices.Elsewhere, in countries like Ecuador, Kazakhstan and Libya, natural disasters and political turbulence have curbed output in recent months.Understand Russia’s Relationship With the WestThe tension between the regions is growing and Russian President Vladimir Putin is increasingly willing to take geopolitical risks and assert his demands.Competing for Influence: For months, the threat of confrontation has been growing in a stretch of Europe from the Baltic Sea to the Black Sea. Threat of Invasion: As the Russian military builds its presence near Ukraine, Western nations are seeking to avert a worsening of the situation.Energy Politics: Europe is a huge customer of Russia’s fossil fuels. The rising tensions in Ukraine are driving fears of a midwinter cutoff.Migrant Crisis: As people gathered on the eastern border of the European Union, Russia’s uneasy alliance with Belarus triggered additional friction.Militarizing Society: With a “youth army” and initiatives promoting patriotism, the Russian government is pushing the idea that a fight might be coming.“Unplanned outages have flipped what was thought to be a pivot towards surplus into a deep production gap,” said Louise Dickson, an oil markets analyst at Rystad Energy, a research and consulting firm.On the demand side, much of the world is learning to cope with the pandemic and people are eager to shop and make other trips. Wary of coming in contact with an infectious virus, many are choosing to drive rather than taking public transportation.But the most immediate and critical factor is geopolitical.A potential Russian invasion of Ukraine has “the oil market on edge,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies in Washington. “In a tight market, any significant disruptions could send prices well above $100 per barrel,” Mr. Cahill wrote in a report this week.Russia produces 10 million barrels of oil a day, or roughly one of every 10 barrels used around the world on any given day. Americans would not be directly hurt in a significant way if Russian exports stopped, because the country sends only about 700,000 barrels a day to the United States. That relatively modest amount could easily be replaced with oil from Canada and other countries.A Russian invasion of Ukraine could interrupt oil and gas shipments, which would increase prices further.Brendan Hoffman for The New York TimesBut any interruption of Russian shipments that transit through Ukraine, or the sabotage of other pipelines in northern Europe, would cripple much of the continent and distort the global energy supply chain. That’s because, traders say, the rest of the world does not have the spare capacity to replace Russian oil.Even if Russian oil shipments are not interrupted, the United States and its allies could impose sanctions or export controls on Russian companies, limiting their access to equipment, which could gradually reduce production in that country.In addition, interruptions of Russian natural gas exports to Europe could force some utilities to produce more electricity by burning oil rather than gas. That would raise demand and prices worldwide.What can the United States and its allies do if Russian production is disrupted?The United States, Japan, European countries and even China could release more crude from their strategic reserves. Such moves could help, especially if a crisis is short-lived. But the reserves would not be nearly enough if Russian oil supplies were interrupted for months or years.Western oil companies that have pledged not to produce too much oil would most likely change their approach if Russia was unable or unwilling to supply as much oil as it did. They would have big financial incentives — from a surging oil price — to drill more wells. That said, it would take those businesses months to ramp up production.What is OPEC doing?President Biden has been urging the Organization of the Petroleum Exporting Countries to pump more oil, but several members have been falling short of their monthly production quotas, and some may not have the capacity to quickly increase output. OPEC members and their allies, Russia among them, are meeting on Wednesday, and will probably agree to continue gradually increasing production.In addition, if Russian supplies are suddenly reduced, Washington will most likely put pressure on Saudi Arabia to raise production independently of the cartel. Analysts think that the kingdom has several million barrels of spare capacity that it could tap in a crisis.What impact would higher oil prices have on the U.S. economy?A big jump in oil prices would push gasoline prices even higher, and that would hurt consumers. Working-class and rural Americans would be hurt the most because they tend to drive more. They also drive older, less fuel-efficient vehicles. And energy costs tend to represent a larger percentage of their incomes, so price increases hit them harder than more affluent people or city dwellers who have access to trains and buses.Rising oil and gas prices would pinch consumers, especially the less affluent and rural residents.Jim Lo Scalzo/EPA, via ShutterstockBut the direct economic impact on the nation would be more modest than in previous decades because the United States produces more and imports less oil since drilling in shale fields exploded around 2010 because of hydraulic fracturing. The United States is now a net exporter of fossil fuels, and the economies of several states, particularly Texas and Louisiana, could benefit from higher prices.What would it take for oil prices to fall?Oil prices go up and down in cycles, and there are several reasons prices could fall in the next few months. The pandemic is far from over, and China has shut down several cities to stop the spread of the virus, slowing its economy and demand for energy. Russia and the West could reach an agreement — formal or tacit — that forestalls a full-scale invasion of Ukraine.And the United States and its allies could restore a 2015 nuclear agreement with Iran that former President Donald J. Trump abandoned. Such a deal would allow Iran to sell oil much more easily than now. Analysts think the country could export a million or more barrels daily if the nuclear deal is revived.Ultimately, high prices could depress demand for oil enough that prices begin to come down. One of the main financial incentives for buying electric cars, for example, is that electricity tends to be cheaper per mile than gasoline. Sales of electric cars are growing fast in Europe and China and increasingly also in the United States. More

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    Mexico Is Buying a Texas Oil Refinery in a Quest for Energy Independence

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    President López Obrador wants to halt most oil exports and imports of gasoline and other fuels. Critics say he is reneging on Mexico’s climate change commitments.DEER PARK, Texas — Two giant murals, on storage tanks at an oil refinery here, depict the rebels led by Sam Houston who secured Texas’ independence from Mexico in the 1830s. This week those murals will become the property of the Mexican national oil company, which is acquiring full control of the refinery.The refinery purchase is part of President Andres Manuel López Obrador’s own bid for an independence of sorts. In an effort to achieve energy self-sufficiency, the president of Mexico is investing heavily in the state-owned oil company, placing a renewed emphasis on petroleum production and retreating from renewable energy even as some oil giants like BP and Royal Dutch Shell are investing more in that sector.Mr. López Obrador aims to eliminate most Mexican oil exports over the next two years so the country can process more of it domestically. He wants to replace the gasoline and diesel supplies the country currently buys from other refineries in the United States with fuel produced domestically or by the refinery in Deer Park, which would be made from crude oil it imports from Mexico. The shift would be an ambitious leap for Petroleos Mexicanos, the company commonly known as Pemex. The company’s oil production, comparable to Chevron’s in recent years, has been falling for more than a decade, and it shoulders more than $100 billion in debt, the largest of any oil company in the world.The decision to pay $596 million for a controlling interest in the Deer Park refinery, which sits on the Houston ship channel and would be the only major Pemex operation outside Mexico, is central to fulfilling Mr. López Obrador’s plans to rehabilitate the long-ailing oil sector and establishing eight productive refineries for Mexican use. Mexico also agreed to pay off $1.2 billion in debts that Pemex and Shell jointly owe as co-owners of the refinery, which is profitable.“It’s something historic,” Mr. López Obrador said last month. In a separate news conference last year, he said, “The most important thing is that in 2023 we will be self-sufficient in gasoline and diesel and there will be no increase in fuel prices.”While Mr. Lopez Obrador’s policies diverge from the rising global concern over climate change, they reflect a lasting temptation for leaders and lawmakers worldwide: replacing imported energy sources with domestically produced fuels. Further, the generally well-paying jobs the oil and other fossil fuel industries provide are politically popular across Latin America, Africa as well as industrialized countries like the United States.In the 1930s, the Mexican government took over Royal Dutch Shell’s operations south of the border as it nationalized the entire oil industry then dominated by foreigners. Now Mr. López Obrador is poised to go one step further, taking complete control of a big Shell oil refinery.The takeover is all the more pointed because it is happening in an industrial suburb that calls itself “the birthplace of Texas,” where rebels marched to the San Jacinto battlefield to defeat the Mexican Army — the event commemorated on the refinery murals. The battlefield is a five-mile drive from the refinery.It is hard to overestimate the connection between oil and politics in Mexico, where the day petroleum was nationalized, March 18, is a national holiday. Oil provides the Mexican government with a third of its revenues, and Pemex is one of the nation’s biggest employers, with about 120,000 workers. Mr. López Obrador hails from the oil-producing state of Tabasco, and the powerful Pemex labor union is a crucial part of his political base. He ran on a platform of rebuilding the company, and has raised its production budget, cut taxes it pays and reversed efforts by his predecessor to restructure its monopoly over oil production in the country.When he took office three years ago, Mr. López Obrador began undoing changes made in 2013 to the country’s Constitution intended to open the oil and gas industry to private and foreign investment. He is also pushing to reverse electricity reforms that his predecessor, Enrique Peña Nieto, put in place to increase the use of privately funded wind and solar farms and move away from state-run power plants fueled by oil and coal.Energy experts say Mexico is backtracking on a commitment it made a decade ago under President Felipe Calderón, to generate more than a third of its power from clean energy sources by 2024. Mexico now produces just over a quarter of its power from renewables.“They are going to heavier fuels rather than to lighter fuels,” said David Goldwyn, a top State Department energy official in the Obama administration. “Virtually every foreign company — Ford, Walmart, G.E., everybody who operates there — has their own net-zero target now. If they can’t get access to clean energy, Mexico becomes a liability.”Mr. López Obrador’s government has said it will combat climate change by investing in hydroelectric power and reforestation.Many of the Mexican president’s initiatives are being contested by opposition lawmakers and the business community. But Mr. López Obrador can do a lot on his own. He plans to spend $8 billion on a project to build an oil refinery in Tabasco state, and more than $3 billion more to modernize six refineries.President Andres Manuel López Obrador hails from the oil-producing state of Tabasco, and the powerful Pemex labor union is a crucial part of his political base.Gustavo Graf Maldonado/ReutersThe purchase of the Deer Park refinery is crucial to his plans because the Tabasco complex will not be completed until 2023 or 2024 and will not produce enough gasoline, diesel and other fuels to meet all of Mexico’s needs.Long a partner of Pemex, Shell, which operates the Deer Park refinery, is selling its stake in part to satisfy investors concerned about climate change who want the oil giant to invest more in renewable energy and hydrogen.Under Mexican ownership the refinery will continue its practice of using Mexican crude oil, but it will probably sell more of the gasoline and other fuels it produces to Mexico. In the future, some energy experts said, Pemex could also use the Deer Park refinery to process oil from other countries that also produce the kinds of heavy crude that Mexico does.“I think it’s a good deal and makes sense for Pemex,” said Tom Kloza, global head of energy analysis at Oil Price Information Service, who noted that Deer Park could perhaps process Venezuelan oil if the United States lifted sanctions against that country.The Mexican policy changes would have only a modest and temporary impact on American refineries, which can replace Mexican oil with crude from Colombia, Brazil, Saudi Arabia and Canada. Refiners could lose as much as a half-million barrels of transportation fuel sales a day to Mexico, but energy experts say refiners would be able to find other markets.Guy Hackwell, the general manager of the Deer Park complex, said, “Best practices will remain in place.” He said the “vast majority of the work force will report to the same job the day after the deal closes.”As for the murals, a Pemex spokeswoman, Jimena Alvarado, said, “We would never remove a historical mural.”Residents in Deer Park, in the heart of the Gulf of Mexico petrochemical complex, say they feel assured that locals will run the plant and Shell will continue to own an adjoining chemical plant. “The phone numbers will remain the same for who we contact in the event of an emergency and we will still have the same people and relationships, so I feel good about that,” Deer Park’s city manager, Jay Stokes, said.But some energy experts said Mr. López Obrador’s approach to energy, including the refinery purchase, would waste precious government resources that could be better used to reduce greenhouse gas emissions and local air pollution. There are also doubts that Mexico can build enough refining capacity to fulfill the president’s objectives.Shell, which operates the Deer Park refinery, is selling its stake in part to satisfy investors concerned about climate change who want the oil giant to invest more in renewable energy and hydrogen.Brandon Thibodeaux for The New York TimesJorge Piñon, a former president of Amoco Oil de Mexico, said Mexico most likely would not be able to immediately profit from slashing exports of crude and processing its own fuels since the refinery business typically has low profit margins, especially in Latin America.He said the Mexican refineries could not match American refineries in handling Mexico’s high-sulfur heavy crude. Mexican fuels made from heavy oil caused severe air pollution problems in many cities before the country began importing cleaner-burning American gasoline and diesel over the last 20 years.By exporting less oil, Mexico would also almost certainly use more of it for domestic power generation, potentially pushing out solar and wind generation and producing more air pollution and greenhouse gas emissions.“His nationalistic decisions will have a negative impact on climate change,” Mr. Piñon said. “He is marching back to the 1930s.”Mr. López Obrador is unapologetic. “Oil is the best business in the world,” he said at a news conference last May. More

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    Cambo, an Oil Project off Scotland, Is Halted by Owner

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    An oil project off the coast of Scotland that had become a test of Britain’s environmental credentials was shelved by its main owner on Friday.The decision to halt Cambo, as the oil field is known, is a huge win for environmental groups like Greenpeace, and a blow to the North Sea oil industry. It comes just over a week after Shell, which owns 30 percent of the project, pulled out of the investment.“We are pausing the development while we evaluate next steps,” said Siccar Point Energy, a London-based company that is backed by private equity firms, including Blackstone, the financial management giant.Siccar Point said it had planned to invest $2.6 billion in Cambo, and had already spent $190 million on the field since acquiring it in 2017. The firm said that developing Cambo, a potentially valuable source of oil and natural gas, would have created 1,000 jobs.Environmental groups, on the other hand, said that starting new drilling projects was not compatible with Britain’s goals on tackling climate change and reaching net zero greenhouse gas emissions by 2050. The British government has been considering whether to let Cambo go ahead.Located northwest of Scotland’s Shetland Islands, Cambo became a target of protests, including at the recent United Nations climate summit in Glasgow. Scotland’s top politician, First Minister Nicola Sturgeon, has said she did not think it should be given a green light.On Dec. 2, Shell said it would not go ahead with investment because the economic case was not strong enough.Shell’s decision, which was also prompted by the potential for delays from protests and lawsuits, led Siccar Point to decide it could not “progress on the originally planned time scale,” the firm said. More

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    U.S. Threat to Squeeze Russia’s Economy Is a Tactic With a Mixed Record

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    Sanctions, like aiming to cut oil exports, could also hurt European allies. “It’s a limited toolbox,” one expert said.LONDON — When Russian soldiers crossed into Ukraine and seized Crimea in 2014, the Obama administration responded with a slate of economic penalties that ultimately imposed sanctions on hundreds of Russian officials and businesses and restricted investments and trade in the nation’s crucial finance, oil and military sectors.Now, with Russian troops massing on Ukraine’s border, the White House national security adviser has declared that President Biden looked Russia’s president, Vladimir V. Putin, in the eye this week “and told him things we didn’t do in 2014 we are prepared to do now.”Whether harsher measures would persuade Russia to stay out of Ukraine, however, is far from clear. Historically, economic sanctions have a decidedly mixed track record, with more failures than successes. And actions that would take the biggest bite out of the Russian economy — like trying to severely curb oil exports — would also be hard on America’s allies in Europe.“We’ve seen that over and over again, that sanctions have a hard time really coercing changes in major policies” said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics who has spent decades researching the topic. “It’s a limited toolbox.”President Biden is looking at the options available to ratchet up economic penalties against Russia.Stefani Reynolds for The New York TimesThe best chances of success are when one country has significant economic leverage over the other and the policy goal is limited, Mr. Schott said — yet neither of those conditions really applies in this case. Mr. Putin has made clear that he considers Russia’s actions in Ukraine a matter of national security. And outside of the oil industry, Russia’s international trade and investments are limited, especially in the United States.With direct military intervention essentially off the table, Biden administration officials have listed a series of options that include financially punishing Mr. Putin’s closest friends and supporters, blocking the conversion of rubles into dollars, and pressuring Germany to block a new gas pipeline between Russia and Northern Europe from opening.Work on that pipeline — called Nord Stream 2 — has been completed, but it is waiting for approval from Germany’s energy regulator before it can begin operating.Any request from Washington would coincide with a leadership change in Berlin. The new chancellor, Olaf Scholz, and his cabinet were sworn into office on Wednesday. He has not yet made any definitive statements on the pipeline. Gas reserves are unusually low in Europe now, however, and there are worries about shortages and soaring prices as winter approaches.Russia supplies more than a third of Europe’s gas through the existing Nord Stream pipeline and has already been accused of withholding supplies as a way of pressuring Germany to approve Nord Stream 2.Washington could impose much more sweeping sanctions on particular companies and banks in Russia that would more severely curtail investment and production in the energy sector. The risk of tough sanctions on a company like Gazprom, which supplies natural gas, is that Russia could retaliate by cutting its deliveries to Europe.“That would hurt Russia a lot but also hurt Europe,” Mr. Schott said.In terms of ratcheting up the pressure, James Nixey, the director of the Russia-Eurasia program at the Chatham House think tank, suggested that financially squeezing the oligarchs who help Mr. Putin maintain power could be one way of bringing more targeted pressure.“I would place a great premium on going after the inner and outer circle around Putin, which have connections back to the regime,” he said.At the moment, the swirl of ambiguity about possible United States actions is useful, he added: “It’s quite good if the Russians are kept guessing.”Russia, the United States and the European Union — which on Wednesday proposed expanding its power to use economic sanctions — are all playing something of a guessing game in order to pursue their policy goals. Russia is deploying troops on the border and at the same time is insisting on a guarantee that Ukraine won’t join NATO, while the West is warning there will be painful economic consequences if an invasion occurs.Ukrainian soldiers patrolling along the Kalmius River, which divides Ukrainian government-controlled territory from non-government-controlled areas, in November.Brendan Hoffman for The New York TimesOne of the most extreme measures would be to cut off Russia from the system of international payments known as SWIFT that moves money around the world, as was done to Iran.In 2019, the Russian prime minister at the time, Dmitri A. Medvedev, labeled such a threat as tantamount to “a declaration of war.”Maria Shagina argued in a report for the Carnegie Moscow Center that such a move would be devastating to Russia, at least in the short term. “The cutoff would terminate all international transactions, trigger currency volatility, and cause massive capital outflows,” she wrote this year.The SWIFT system, which is based in Belgium, handles international payments among thousands of banks in more than 200 countries.Since 2014, Moscow has taken steps to blunt the threat by developing its own system to process domestic credit card transactions, she noted. But it is another measure that would affect European countries more than the United States because they do so much more business with Russia.Several economic and political analysts have said restricting access to SWIFT would be a last resort.Arie W. Kruglanski, a psychology professor at the University of Maryland, said that in assessing the impact of sanctions, economists too often overlook the crucial psychological aspect.“Sanctions can work when leaders are concerned about economic issues more than anything else,” he said, but he doesn’t think the Russian leader falls into that category. To Mr. Kruglanski, strongman authoritarians like Mr. Putin are motivated by a sense of their own significance, and threats are more likely to stiffen opposition rather than encourage compromise.When it comes to Ukraine-related sanctions so far, the impact has been negligible, Mr. Nixey of Chatham House said.“A lot of these things the Russians have learned to live with, partly because implementation has been slow or poor and effects on the Russian economy are manageable,” he added.Success can be defined in various ways. Mr. Nixey said that the 2014 measures most likely deterred the Kremlin from further military interventions in Ukraine. A report for the Atlantic Council, a think tank that focuses on international relations, released this spring came to the same that conclusion.Sanctions certainly did not compel Russia to reverse its annexation of Crimea, Mr. Nixey said, but they may have persuaded Mr. Putin from taking more aggressive actions — at least until now. More

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    Inflation Batters Pakistan and Puts Pressure on Imran Khan

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    Rising prices and a weakened currency are straining households, intensifying pressure on Prime Minister Imran Khan to find solutions.Muhammad Nazir canceled his daughter’s wedding. He parks his motorcycle at home and walks to his shop. Many of his shelves are empty because he can’t afford to stock the same supply of candy, soft drinks and cookies that he once did.A growing number of his customers can’t buy his snacks anyway. The global inflation wave has dealt a severe blow to Pakistan, a country of 220 million people already struggling with erratic growth and heavy government debt.As the cost of food and fuel eats up a larger share of meager incomes, people are putting pressure on the government of Prime Minister Imran Khan to do something.“I am not making any profit these days,” Mr. Nazir, 66, said from his shop in Sohawa, a town about 50 miles southeast of Pakistan’s capital of Islamabad. “Still, I come here every day, open the shop and wait for customers.”Surging prices have imperiled President Biden’s agenda in the United States and hit shoppers from Germany to Mexico to South Africa. But they are having a particularly nasty effect in Pakistan, a developing country already prone to political instability and heavily dependent on imports like fuel. The effect has been worsened by a sharp weakening of Pakistan’s currency, the rupee, giving it less purchasing power internationally.Pakistan’s economy has been in and out of crisis since Prime Minister Imran Khan came to power in 2018.Didor Sadulloev/ReutersWhile inflation is expected to ease as supply-chain bottlenecks unsnarl, Pakistan feels it can’t wait. On Monday, the government announced that it had reached an agreement with the International Monetary Fund for the first $1 billion of what is expected to be a $6 billion rescue package.“The economy is the biggest threat that the government is in fact facing right now,” said Khurram Husain, a business journalist in Karachi. “This is basically eroding the very basis of their public support.”Protests organized by opposition parties have broken out across Pakistan in recent weeks, causing Mr. Khan’s political allies to examine their loyalties. The Pakistan Muslim League-Q, or P.M.L.-Q, party, which is in a coalition with Mr. Khan, said this month that it was becoming difficult to remain part of the government.“Our members of Parliament are feeling a lot of pressure in their constituencies,” said Moonis Elahi, Mr. Khan’s minister for water resources and a member of P.M.L.-Q. “Some even suggested leaving the alliance if the situation doesn’t improve.”Government officials have downplayed the recent surge in inflation, saying it is a global phenomenon. Mr. Khan has also blamed the foreign debt burden he inherited from the previous government.“The government spent the first year in stabilizing the economy, but when it was close to stabilizing it, the country faced the biggest crisis in 100 years: the coronavirus epidemic,” he said, adding, “No doubt the inflation is an issue.”Officials also cite price comparisons of fuel costs with neighboring countries, like India, claiming that Pakistan is still better off. Pakistanis have seen standard gas prices jump 34 percent in the last six months, to about 146 rupees a liter.Filling up the tank in Peshawar in early November. Pakistan imports a large portion of its oil, diesel and gasoline.Bilawal Arbab/EPA, via ShutterstockPakistan has been rushing to tamp down inflation and get the money it needs to keep buying abroad. Last week, Pakistan’s central bank sharply raised interest rates, a move that could help cool price increases but one that could crimp economic growth.Mr. Khan’s government reached out to Saudi Arabia for a lifeline. The Saudi crown prince, Mohammed bin Salman, pledged $4.2 billion in cash assistance. Members of his government are also chasing loans from China that they say are needed to complete crucial power-sector projects that are part of the $62 billion China-Pakistan Economic Corridor.Pakistan’s economy has been in and out of crisis since Mr. Khan, a former cricket star, came to power in 2018. But other periods of inflation were felt mainly by the rich, economists say. This bad turn is affecting everyone.Inflation surged 9.2 percent in October from the year before, according to government data. Food-price inflation is crushing Pakistan’s poorest residents, who already normally spend more than half of their incomes on food. The cost of basic food items shot up this month by 17 percent year over year, government data show. Pakistan’s biggest food import is palm oil, which has jumped in price.In the United States, food prices have risen 4.6 percent.In terms of energy, Pakistan imports about 80 percent of its oil and diesel and about 35 percent of its gasoline, according to Muzzammil Aslam, a spokesman for the finance ministry. The cost of electricity in Pakistan is already twice as much as in countries like India, China and Bangladesh.“The economy is not well,” Mian Nasser Hyatt Maggo, the president of the Federation of Pakistan Chambers of Commerce & Industry, a Karachi-based industry group, said simply.A charity worker served inexpensive dishes to laborers and others along a roadside in Karachi in June. The government subsidizes the cost of foods like grains, legumes and cooking oil.Asif Hassan/Agence France-Presse — Getty ImagesUnemployment has risen sharply, too, particularly among college graduates in cities. The number of people falling into poverty is up.Understand Rising Gas Prices in the U.S.Card 1 of 5A steady rise. More

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    Winter Heating Bills Loom as the Next Inflation Threat

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    With consumers already dealing with the fastest price increases in decades, another unwelcome uptick is on the horizon: a widely expected increase in winter heating bills.After plunging during the pandemic as the global economy slowed, energy prices have roared upward. Natural gas, used to heat almost half of U.S. households, has almost doubled in price since this time last year. The price of crude oil — which deeply affects the 10 percent of households that rely on heating oil and propane during the winter — has soared by similarly eye-popping levels.And those costs are being quickly passed through to consumers, who have become accustomed to cheaper energy prices in recent years and now find themselves with growing concerns about inflation this year. More

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    As Western Oil Giants Cut Production, State-Owned Companies Step Up

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    In the Middle East, Africa and Latin America, government-owned energy companies are increasing oil and natural gas production as U.S. and European companies pare supply because of climate concerns.HOUSTON — After years of pumping more oil and gas, Western energy giants like BP, Royal Dutch Shell, Exxon Mobil and Chevron are slowing down production as they switch to renewable energy or cut costs after being bruised by the pandemic.But that doesn’t mean the world will have less oil. That’s because state-owned oil companies in the Middle East, North Africa and Latin America are taking advantage of the cutbacks by investor-owned oil companies by cranking up their production.This massive shift could reverse a decade-long trend of rising domestic oil and gas production that turned the United States into a net exporter of oil, gasoline, natural gas and other petroleum products, and make America more dependent on the Organization of the Petroleum Exporting Countries, authoritarian leaders and politically unstable countries.The push by governments to increase oil and gas production means it could take decades for global fossil fuel supplies to decline unless there is a sharp drop in demand for such fuels. President Biden has effectively accepted the idea that the United States will rely more on foreign oil, at least for the next few years. His administration has been calling on OPEC and its allies to boost production to help bring down rising oil and gasoline prices, even as it seeks to limit the growth of oil and gas production on federal lands and waters.The administration’s approach is a function of two conflicting priorities: Mr. Biden wants to get the world to move away from fossil fuels while protecting Americans from a spike in energy prices. In the short run, it is hard to achieve both goals because most people cannot easily replace internal-combustion engine cars, gas furnaces and other fossil fuel-based products with versions that run on electricity generated from wind turbines, solar panels and other renewable sources of energy.Western oil companies are also under pressure from investors and environmental activists who are demanding a rapid transition to clean energy. Some U.S. producers have said they are reluctant to invest more because they fear oil prices will fall again or because banks and investors are less willing to finance their operations. As a result, some are selling off parts of their fossil fuel empires or are simply spending less on new oil and gas fields.That has created a big opportunity for state-owned oil companies that are not under as much pressure to reduce emissions, though some are also investing in renewable energy. In fact, their political masters often want these oil companies to increase production to help pay down debt, finance government programs and create jobs.Saudi Aramco, the world’s leading oil producer, has announced that it plans to increase oil production capacity by at least a million barrels a day, to 13 million, by the 2030s. Aramco increased its exploration and production investments by $8 billion this year, to $35 billion.“We are capitalizing on the opportunity,” Aramco’s chief executive, Amin H. Nasser, recently told financial analysts. “Of course we are trying to benefit from the lack of investments by major players in the market.”Aramco not only has vast reserves but it can also produce oil much more cheaply than Western companies because its crude is relatively easy to pump out of the ground. So even if demand declines because of a rapid shift to electric cars and trucks, Aramco will most likely be able to pump oil for years or decades longer than many Western energy companies.“The state companies are going their own way,” said René Ortiz, a former OPEC secretary general and a former energy minister in Ecuador. “They don’t care about the political pressure worldwide to control emissions.”State-owned oil companies in Kuwait, the United Arab Emirates, Iraq, Libya, Argentina, Colombia and Brazil are also planning to increase production. Should oil and natural gas prices stay high or rise further, energy experts say, more oil-producing nations will be tempted to crank up supply.The global oil market share of the 23 nations that belong to OPEC Plus, a group dominated by state oil companies in OPEC and allied countries like Russia and Mexico, will grow to 75 percent from 55 percent in 2040, according to Michael C. Lynch, president of Strategic Energy and Economic Research in Amherst, Mass., who is an occasional adviser to OPEC.If that forecast comes to pass, the United States and Europe could become more vulnerable to the political turmoil in those countries and to the whims of their rulers. Some European leaders and analysts have long argued that President Vladimir V. Putin of Russia uses his country’s vast natural gas reserves as a cudgel — a complaint that has been voiced again recently as European gas prices have surged to record highs.A pump jack in Stanton, Texas. American companies have been cautiously holding back exploration and production.Brandon Thibodeaux for The New York TimesOther oil and gas producers like Iraq, Libya and Nigeria are unstable, and their production can rise or fall rapidly depending on who is in power and who is trying to seize power.“By adopting a strategy of producing less oil, Western oil companies will be turning control of supply over to national oil companies in countries that could be less reliable trading partners and have weaker environmental regulations,” Mr. Lynch said.An overreliance on foreign oil can be problematic because it can limit the options American policymakers have when energy prices spike, forcing presidents to effectively beg OPEC to produce more oil. And it gives oil-producing countries greater leverage over the United States.“Today when U.S. shale companies are not going to respond to higher prices with investment for financial reasons, we are depending on OPEC, whether it is willing to release spare production or not,” said David Goldwyn, a senior energy official in the State Department in the Obama administration. He compared the current moment to one in 2000 when the energy secretary, Bill Richardson, “went around the world asking OPEC countries to release spare capacity to relieve price pressure.”This time, state-owned energy companies are not merely looking to produce more oil in their home countries. Many are expanding overseas.In recent months, Qatar Energy invested in several African offshore fields while the Romanian national gas company bought an offshore production block from Exxon Mobil. As Western companies divest polluting reserves such as Canadian oil sands, energy experts say state companies can be expected to step in.“There is a lot of low-hanging fruit state companies can pick up,” said Raoul LeBlanc, an oil analyst at IHS Markit, a consulting and research firm. “It is a huge opportunity for them to become international players.”Kuwait announced last month that it planned to invest more than $6 billion in exploration over the next five years to increase production to four million barrels a day, from 2.4 million now.This month, the United Arab Emirates, a major OPEC member that produces four million barrels of oil a day, became the first Persian Gulf state to pledge to a net zero carbon emissions target by 2050. But just last year ADNOC, the U.A.E.’s national oil company, announced it was investing $122 billion in new oil and gas projects.Iraq, OPEC’s second-largest producer after Saudi Arabia, has invested heavily in recent years to boost oil output, aiming to raise production to eight million barrels a day by 2027, from five million now. The country is suffering from political turmoil, power shortages and inadequate ports, but the government has made several major deals with foreign oil companies to help the state-owned energy company develop new fields and improve production from old ones.Even in Libya, where warring factions have hamstrung the oil industry for years, production is rising. In recent months, it has been churning out 1.3 million barrels a day, a nine-year high. The government aims to increase that total to 2.5 million within six years.National oil companies in Brazil, Colombia and Argentina are also working to produce more oil and gas to raise revenue for their governments before demand for oil falls as richer countries cut fossil fuel use.After years of frustrating disappointments, production in the Vaca Muerta, or Dead Cow, oil and gas field in Argentina has jumped this year. The field had never supplied more than 120,000 barrels of oil in a day but is now expected to end the year at 200,000 a day, according to Rystad Energy, a research and consulting firm. The government, which is considered a climate leader in Latin America, has proposed legislation that would encourage even more production.“Argentina is concerned about climate change, but they don’t see it primarily as their responsibility,” said Lisa Viscidi, an energy expert at the Inter-American Dialogue, a Washington research organization. Describing the Argentine view, she added, “The rest of the world globally needs to reduce oil production, but that doesn’t mean that we in particular need to change our behavior.” More

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    World’s Growth Cools and the Rich-Poor Divide Widens

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    The International Monetary Fund says the persistence of the coronavirus and global supply chain crisis weighs on economies.As the world economy struggles to find its footing, the resurgence of the coronavirus and supply chain chokeholds threaten to hold back the global recovery’s momentum, a closely watched report warned on Tuesday.The overall growth rate will remain near 6 percent this year, a historically high level after a recession, but the expansion reflects a vast divergence in the fortunes of rich and poor countries, the International Monetary Fund said in its latest World Economic Outlook report.Worldwide poverty, hunger and unmanageable debt are all on the upswing. Employment has fallen, especially for women, reversing many of the gains they made in recent years.Uneven access to vaccines and health care is at the heart of the economic disparities. While booster shots are becoming available in some wealthier nations, a staggering 96 percent of people in low-income countries are still unvaccinated.“Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere,” Gita Gopinath, the I.M.F.’s chief economist, wrote in the report.The outlook for the United States, Europe and other advanced economies has also darkened. Factories hobbled by pandemic-related restrictions and bottlenecks at key ports around the world have caused crippling supply shortages. A lack of workers in many industries is contributing to the clogs. The U.S. Labor Department reported Tuesday that a record 4.3 million workers quit their jobs in August — to take or seek new jobs, or to leave the work force.A street in São Paulo, Brazil, in July. Poverty in many nations is on the upswing.Mauricio Lima for The New York TimesIn the United States, weakening consumption and large declines in inventory caused the I.M.F. to pare back its growth projections to 6 percent from the 7 percent estimated in July. In Germany, manufacturing output has taken a hit because key commodities are hard to find. And lockdown measures over the summer have dampened growth in Japan.Fear of rising inflation — even if likely to be temporary — is growing. Prices are climbing for food, medicine and oil as well as for cars and trucks. Inflation worries could also limit governments’ ability to stimulate the economy if a slowdown worsens. As it is, the unusual infusion of public support in the United States and Europe is winding down.“Overall, risks to economic prospects have increased, and policy trade-offs have become more complex,” Ms. Gopinath said. The I.M.F. lowered its 2021 global growth forecast to 5.9 percent, down from the 6 percent projected in July. For 2022, the estimate is 4.9 percent.The key to understanding the global economy is that recoveries in different countries are out of sync, said Gregory Daco, chief U.S. economist at Oxford Economics. “Each and every economy is suffering or benefiting from its own idiosyncratic factors,” he said.For countries like China, Vietnam and South Korea, whose economies have large manufacturing sectors, “inflation hits them where it hurts the most,” Mr. Daco said, raising costs of raw materials that reverberate through the production process.The pandemic has underscored how economic success or failure in one country can ripple throughout the world. Floods in Shanxi, China’s mining region, and monsoons in India’s coal-producing states contribute to rising energy prices. A Covid outbreak in Ho Chi Minh City that shuts factories means shop owners in Hoboken won’t have shoes and sweaters to sell.South Africa has sent a train with vaccines into one of its poorest provinces to get doses to areas where health care facilities are stretched.Jerome Delay/Associated PressThe I.M.F. warned that if the coronavirus — or its variants — continued to hopscotch across the globe, it could reduce the world’s estimated output by $5.3 trillion over the next five years.The worldwide surge in energy prices threatens to impose more hardship as it hampers the recovery. This week, oil prices hit a seven-year high in the United States. With winter approaching, Europeans are worried that heating costs will soar when temperatures drop. In other spots, the shortages have cut even deeper, causing blackouts in some places that paralyzed transport, closed factories and threatened food supplies.In China, electricity is being rationed in many provinces and many companies are operating at less than half of their capacity, contributing to an already significant slowdown in growth. India’s coal reserves have dropped to dangerously low levels.And over the weekend, Lebanon’s six million residents were left without any power for more than 24 hours after fuel shortages shut down the nation’s power plants. The outage is just the latest in a series of disasters there. Its economic and financial crisis has been one of the world’s worst in 150 years.Oil producers in the Middle East and elsewhere are lately benefiting from the jump in prices. But many nations in the region and North Africa are still trying to resuscitate their pandemic-battered economies. According to newly updated reports from the World Bank, 13 of the 16 countries in that region will have lower standards of living this year than they did before the pandemic, in large part because of “underfinanced, imbalanced and ill-prepared health systems.”Other countries were so overburdened by debt even before the pandemic that governments were forced to limit spending on health care to repay foreign lenders.A power outage on Monday in Beirut. Lebanon’s economic and financial crisis has been one of the world’s worst in 150 years.Agence France-Presse — Getty ImagesIn Latin America and the Caribbean, there are fears of a second lost decade of growth like the one experienced after 2010. In South Africa, over one-third of the population is out of work.And in East Asia and the Pacific, a World Bank update warned that “Covid-19 threatens to create a combination of slow growth and increasing inequality for the first time this century.” Businesses in Indonesia, Mongolia and the Philippines lost on average 40 percent or more of their typical monthly sales. Thailand and many Pacific island economies are expected to have less output in 2023 than they did before the pandemic.Overall, though, some developing economies are doing better than last year, partly because of the increase in the prices of commodities like oil and metals that they produce. Growth projections ticked up slightly to 6.4 percent in 2021 compared with 6.3 percent estimated in July.“The recovery has been incredibly uneven,” and that’s a problem for everyone, said Carl Tannenbaum, chief economist at Northern Trust. “Developing countries are essential to global economic function.”The outlook is clouded by uncertainty. Erratic policy decisions — like Congress’s delay in lifting the debt ceiling — can further set back the recovery, the I.M.F. warned.But the biggest risk is the emergence of a more infectious and deadlier coronavirus variant.Ms. Gopinath at the I.M.F. urged vaccine manufacturers to support the expansion of vaccine production in developing countries.Earlier this year, the I.M.F. approved $650 billion worth of emergency currency reserves that have been distributed to countries around the world. In this latest report, it again called on wealthy countries to help ensure that these funds are used to benefit poor countries that have been struggling the most with the fallout of the virus.“We’re witnessing what I call tragic reversals in development across many dimensions,” said David Malpass, the president of the World Bank. “Progress in reducing extreme poverty has been set back by years — for some, by a decade.”Ben Casselman More