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    Why the U.S. Can’t Quickly Wean Europe From Russian Gas

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    The Biden administration’s plan to send more natural gas to Europe will be hampered by the lack of export and import terminals.HOUSTON — President Biden announced Friday that the United States would send more natural gas to Europe to help it break its dependence on Russian energy. But that plan will largely be symbolic, at least in the short run, because the United States doesn’t have enough capacity to export more gas and Europe doesn’t have the capacity to import significantly more.In recent months, American exporters, with President Biden’s encouragement, have already maximized the output of terminals that turn natural gas into a liquid easily shipped on large tankers. And they have diverted shipments originally bound for Asia to Europe.But energy experts said that building enough terminals on both sides of the Atlantic to significantly expand U.S. exports of liquefied natural gas, or L.N.G., to Europe could take two to five years. That reality is likely to limit the scope of the natural gas supply announcement that Mr. Biden and the European Commission president, Ursula von der Leyen, announced on Friday.“In the near term there are really no good options, other than begging an Asian buyer or two to give up their L.N.G. tanker for Europe,” said Robert McNally, who was an energy adviser to former President George W. Bush. But he added that once sufficient gas terminals were built, the United States could become the “arsenal for energy” that helps Europe break its dependence on Russia. Friday’s agreement, which calls on the United States to help the European Union secure an additional 15 billion cubic meters of liquefied natural gas this year, could also undermine efforts by Mr. Biden and European officials to combat climate change. Once new export and import terminals are built, they will probably keep operating for several decades, perpetuating the use of a fossil fuel much longer than many environmentalists consider sustainable for the planet’s well-being.For now, however, climate concerns appear to be taking a back seat as U.S. and European leaders seek to punish President Vladimir V. Putin of Russia for invading Ukraine by depriving him of billions of dollars in energy sales.The United States has already increased energy exports to Europe substantially. So far this year, nearly three-quarters of U.S. L.N.G. has gone to Europe, up from 34 percent for all of 2021. As prices for natural gas have soared in Europe, American companies have done everything they can to send more gas there. The Biden administration has helped by getting buyers in Asian countries like Japan and South Korea to forgo L.N.G. shipments so they could be sent to Europe.The United States has plenty of natural gas, much of it in shale fields from Pennsylvania to the Southwest. Gas bubbles out of the ground with oil from the Permian Basin, which straddles Texas and New Mexico, and producers there are gradually increasing their output of both oil and gas after greatly reducing production in the first year of the pandemic, when energy prices collapsed.But the big problem with sending Europe more energy is that natural gas, unlike crude oil, cannot easily be put on oceangoing ships. The gas has to first be chilled in an expensive process at export terminals, mostly on the Gulf Coast. The liquid gas is then poured into specialized tankers. When the ships arrive at their destination, the process is run in reverse to convert L.N.G. back into gas.A large export or import terminal can cost more than $1 billion, and planning, obtaining permits and completing construction can take years. There are seven export terminals in the United States and 28 large-scale import terminals in Europe, which also gets L.N.G. from suppliers like Qatar and Egypt.Some European countries, including Germany, have until recently been uninterested in building L.N.G. terminals because it was far cheaper to import gas by pipeline from Russia. Germany is now reviving plans to build its first L.N.G. import terminal on its northern coast.A pier in Wilhelmshaven, Germany, the port where Uniper, a German energy company, wanted to build a liquified natural gas terminal before it was shelved. Now Germany is reviving plans to build it.The New York Times“Europe’s need for gas far exceeds what the system can supply,” said Nikos Tsafos, an energy analyst at the Center for Strategic and International Studies in Washington. “Diplomacy can only do so much.”In the longer term, however, energy experts say the United States could do a lot to help Europe. Along with the European Union, Washington could provide loan guarantees for U.S. export and European import terminals to reduce costs and accelerate construction. Governments could require international lending institutions like the World Bank and the European Investment Bank to make natural gas terminals, pipelines and processing facilities a priority. And they could ease regulations that gas producers, pipeline builders and terminal developers argue have made it more difficult or expensive to build gas infrastructure.Charif Souki, executive chairman of Tellurian, a U.S. gas producer that is planning to build an export terminal in Louisiana, said he hoped the Biden administration would streamline permitting and environmental reviews “to make sure things happen quickly without micromanaging everything.” He added that the government could encourage banks and investors, some of whom have recently avoided oil and gas projects in an effort to burnish their climate credentials, to lend to projects like his.“If all the major banks in the U.S. and major institutions like BlackRock and Blackstone feel comfortable investing in hydrocarbons, and they are not going to be criticized, we will develop $100 billion worth of infrastructure we need,” Mr. Souki said.A handful of export terminals are under construction in the United States and could increase exports by roughly a third by 2026. Roughly a dozen U.S. export terminal projects have been approved by the Federal Energy Regulatory Commission but can’t go ahead until they secure financing from investors and lenders.“That’s the bottleneck,” Mr. Tsafos said.Roughly 10 European import terminals are being built or are in the planning stages in Italy, Belgium, Poland, Germany, Cyprus and Greece, but most still don’t have their financing lined up.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Will War Make Europe’s Switch to Clean Energy Even Harder?

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    At the Siemens Gamesa factory in Aalborg, Denmark, where the next generation of offshore wind turbines is being built, workers are on their hands and knees inside a shallow, canoe-shaped pod that stretches the length of a football field. It is a mold used to produce one half of a single propeller blade. Guided by laser markings, the crew is lining the sides with panels of balsa wood.The gargantuan blades offer a glimpse of the energy future that Europe is racing toward with sudden urgency. The invasion of Ukraine by Russia — the European Union’s largest supplier of natural gas and oil — has spurred governments to accelerate plans to reduce their dependence on climate-changing fossil fuels. Armed conflict has prompted policymaking pledges that the more distant threat of an uninhabitable planet has not.Smoothly managing Europe’s energy switch was always going to be difficult. Now, as economies stagger back from the second year of the pandemic, Russia’s attack on Ukraine grinds on and energy prices soar, the painful trade-offs have crystallized like never before.Moving investments away from oil, gas and coal to sustainable sources like wind and solar, limiting and taxing carbon emissions, and building a new energy infrastructure to transmit electricity are crucial to weaning Europe off fossil fuels. But they are all likely to raise costs during the transition, an extremely difficult pill for the public and politicians to swallow.The crisis that has inspired Europe to more quickly reach toward clean energy sources like wind and solar also risks pitching it backward by unwinding efforts to shut coal mines and stop drilling new oil and gas wells to replace Russian fuel and bring prices down.Workers at Siemens Gamesa preparing a mold used to produce one half of a single propeller blade.Carsten Snejbjerg for The New York TimesIn Germany, Europe’s largest economy, leaders are planning to have several coal-fired power plants that were recently taken off the grid placed in reserve, so that they could be quickly fired up if needed. After years of dithering about investing so much in the natural gas infrastructure, Germany is also accelerating plans to build its own terminals for receiving liquefied natural gas, another fossil fuel.“Security of our energy supply stands above everything else at the moment,” said Robert Habeck, the country’s economy minister and a Green party leader in the coalition government.Local officials are taking similar steps. Last week, the Munich government decided to extend the life of one of the city’s coal-fired power plants, scrapping plans to convert it to burn natural gas in spring 2023.And that’s in a country that has helped spearhead Europe’s efforts to shift to renewable energy.In Poland, which gets 70 percent of its energy from coal and has been at loggerheads with the European Union over the climate agenda, the sudden energy shortage is being used by critics as evidence that the push to shut mines was a mistake.A power plant in Poland run by CEZ Group, a Czech conglomerate of companies in the energy sector.Maciek Nabrdalik for The New York TimesDominik Kolorz, head of the Silesian region of Solidarity Trade Union, said through a translator that “the so-called E.U. climate policy” was leading to a “huge economic crisis” and “total energy dependence on the Russian Federation.”In many ways, Europe has been a leading laboratory for the decades-long transition. It started establishing taxes on carbon emissions more than 20 years ago. The European Union pioneered an emissions trading system, which capped the amount of greenhouse gases companies produced and created a marketplace where licenses for those emissions could be bought and sold. Polluting industries like steel were gradually pushed to clean up. Last year, members proposed a carbon tax on imports from carbon-producing sectors like steel and cement.And it has led the way in generating wind power, especially from ocean-based turbines. Siemens Gamesa Renewable Energy, for example, has been instrumental in planting rows of colossal whirligigs at sea that can generate enough green energy to light up cities.Europe, too, is on the verge of investing billions in hydrogen, potentially the multipurpose clean fuel of the future, which might be generated by wind turbines.At Siemens Gamesa in Brande, a prototype for an even larger wind turbine.Carsten Snejbjerg for The New York TimesWind turbines can potentially generate enough green energy to light up cities.Carsten Snejbjerg for The New York TimesSuch exhilarating innovation, though, sits next to despair-inducing obstacles.Even before the invasion of Ukraine, a tight natural gas market, exacerbated by Russia’s restraining of supplies, had pushed gas and electricity prices to record levels, leading to shutdowns of fertilizer plants and other factories because of high costs. Household energy bills are set to rise by about 50 percent in Britain and drivers across Europe faced shock at the pump.European countries, most notably Germany, had mapped out strategies that relied on increasing dependence on Russian gas and oil in the medium term. That is no longer an option.After the invasion, Olaf Scholz, the chancellor of Germany, halted approval of Nord Stream 2, an $11 billion gas pipeline under the Baltic Sea that directly links Russia to northeastern Germany.As Ursula von der Leyen, the European Commission president, said when she announced a plan on March 8 to make Europe independent of Russian fossil fuels: “We simply cannot rely on a supplier who explicitly threatens us.” The proposal calls for member nations to reduce Russian natural gas imports by two-thirds by next winter and to end them altogether by 2027 — a very tall order.This week, European Union leaders are again meeting to discuss the next phase of proposals, but deep divisions remain over how to manage the current price increases amid anxieties that Europe could face a double whammy of inflation and recession.On Monday, United Nations Secretary General António Guterres warned that intense focus on quickly replacing Russian oil could mean that major economies “neglect or kneecap policies to cut fossil fuel use.”A hydrogen test station near the Siemens Gamesa design center. Hydrogen produced with wind power could be a multipurpose clean fuel of the future.Carsten Snejbjerg for The New York TimesThere are other technological, financial, regulatory and political hurdles. The ability to cheaply generate, transport and store a clean replacement fuel like hydrogen to power trucks, cars and airplanes remains years away.And there is the need to find a better business model.Siemens Gamesa is the world’s leading maker of offshore wind turbines, a key vehicle for achieving climate targets. The company is also working on a giant turbine that would be dedicated solely to producing green hydrogen.Yet, at the company’s offshore design center in Brande, a two-hour drive from Aalborg, the conversations focus on worries as much as bright prospects. The company just replaced its chief executive because of poor financial performance.Industry executives say that despite the huge climate ambitions of many countries, Siemens Gamesa and its competitors are struggling to make a profit and keep the orders coming in fast enough to finance their factories. It doesn’t help that building plants is often a condition for breaking into new markets like the United States, where Siemens Gamesa agreed to erect a facility in Virginia.Morten Pilgaard Rasmussen of Siemens Gamesa says companies like his struggle to get projects approved swiftly.Carsten Snejbjerg for The New York TimesMorten Pilgaard Rasmussen, chief technology officer of the offshore wind unit at Siemens Gamesa, said that companies like his “are now forced to do investments based on the prosperous future that we are all waiting for.”The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    U.S. warns servicing or refueling some Russian-owned planes may violate trade restrictions.

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    The Commerce Department said on Friday that it had identified 100 commercial and private aircraft that violated U.S. export controls by flying into Russia and that their owners, operators and servicers were at risk of substantial jail time, fines, loss of export privileges or other restrictions.The announcement said it was putting the world “on notice” not to repair or refuel the planes, highlighting the scope of the new limitations.Since March 2, the department identified a number of commercial and private flights to Russia that most likely violated the restrictions, including on aircraft owned or operated by Aeroflot, AirBridgeCargo, Aviastar-TU, Azur Air, Nordwind, Utair and Roman Abramovich, a Russian billionaire with ties to President Vladimir V. Putin, according to the announcement. Most of the planes were made by Boeing.On Feb. 24, the department imposed broad restrictions on technology that could be exported to Russia, part of an effort to cripple the country’s military and strategic industries. In addition to semiconductors, telecommunications equipment and sensors, the restrictions bar aircraft and some aircraft parts that are made in the United States from being sent to Russia.As a result of the rules, any aircraft manufactured in the United States, or manufactured in a foreign country that used certain American parts or technology, must receive a license to travel to Russia.And any entity providing services to those aircraft, including maintenance, repair and refueling, would also be in violation of the rules, the Commerce Department said.Because the aircraft are prevented from receiving any service, flights to and from Russia on these aircraft are effectively grounded, the department said.“We will not allow Russian and Belarusian companies and oligarchs to travel with impunity in violation of our laws,” Commerce Secretary Gina M. Raimondo said in a statement. More

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    Refugee Crisis Will Test a European Economy Under Pressure

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    Nearly everyone who crossed the Danube on the open-air ferry from Ukraine and landed in the frostbitten Romanian port city of Isaccea on a recent morning had a roller bag and a stopgap plan. One woman planned to join her husband in Istanbul. Another was headed to Munich, where her company has its headquarters. Others were meeting brothers, cousins, in-laws and friends in Paris or Sofia, Madrid or Amsterdam.And then, they hoped to go back to Ukraine.“I need to return,” said Lisa Slavachevskaya, who traveled with her 10-year-old son and 5-year-old daughter from Odessa. “My husband, my mother and my grandmother are there.” She said she planned to go home in a month.Whether such quick turnabouts are possible is one of the many uncertainties hanging over Europe’s fastest-growing refugee crisis since World War II. No matter how the catastrophe in Ukraine ends, the costs of helping the millions of Ukrainians fleeing Russian bombs will be staggering. Some early estimates put the bill for housing, transporting, feeding and processing the flood of humanity at $30 billion in the first year alone.“This is a humanitarian and medical emergency in the next weeks,” said Giovanni Peri, director of the Global Migration Center at the University of California, Davis.Tania Uzunova with her three children on a ferry headed to Isaccea in Romania.What happens over the next few months will determine if Europe will face the additional costs of a massive resettlement that has the potential to reshape the economic landscape.European economies are still recovering from the pandemic and coping with stubborn supply chain shortages and high inflation. As costly as it will be to provide short-term relief to families temporarily displaced by the war, over the long term the expense of integrating millions of people would be much greater and put immense strain on housing, education and health care systems. While a giant influx of workers, particularly skilled ones, is likely to increase a nation’s output over time, it could intensify competition in the job market. Roughly 13 million people were unemployed in the European Union in January.“It is uncertainty that now dominates the economic calculation,” Mr. Peri said.More than three million refugees fled Ukraine in less than three weeks, according to the U.N. International Organization for Migration, and millions more are likely to follow as the war rages on.Officials, migration experts and economists say it is too early to say whether most displaced Ukrainians will end up staying.That is a stark contrast to 2015, when 1.3 million migrants from the Middle East and North Africa escaped to Europe after years of war and terror, seeking asylum because they feared persecution. Return was not an option.So far, officials say, relatively few have asked for such protection. Of the 431,000 Ukrainians who have crossed into Romania, for example, only 3,800 have asked for asylum. Indeed, many winced at the “refugee” label.Of the 431,000 Ukrainians who have crossed into Romania, only 3,800 have asked for asylum, according to a government spokesman.“I don’t consider myself a refugee,” Evgeniy Serheev, a lawyer, said through a translator as he waited to cross into the northeastern Romanian town of Siret. But with his wife, three children and their bags crammed into one of hundreds of cars inching toward the border, he acknowledged that he looked the part.The urgent humanitarian and moral case is compelling on its face; the economic argument can be harder to make. Most research, though, over the long term shows that working refugees can help economies grow, expanding a nation’s productive capacity, paying taxes and generating more business for grocery stores, hair salons, and clothing and electronics stores. That was what happened in Germany after 2015 when it took in more than a million refugees, most of them from Syria.“Economically speaking it was a net positive,” said Ángel Talavera, head of European economics at Oxford Economics.But countries face significant initial costs.The European Union last week pledged 500 million euros, or $550 million, in humanitarian support, but it will have to put up more. “European governments are going to blow the budget,” said Claus Vistesen, chief eurozone economist for Pantheon Macroeconomics. This latest drain comes on top of an extraordinary amount of public spending over the last two years to battle the coronavirus pandemic.The sudden need for more housing, fuel, food, health care services and more is going to further exacerbate supply shortages. “Inflation is going to go up, up, up,” Mr. Vistesen said.Igor Korolev with his family and their cat, Murka, inside a makeshift shelter in the ballroom of a hotel in Romania.The Ukranians were welcomed by Romania with food and shelter.Cristian Movila for The New York TimesMost Ukrainians have been met with care packages and offers of free shelter in Romania.In the eurozone, inflation is running at 5.8 percent, and Mr. Vistesen said he expected it to rise to 7 percent this year given soaring energy prices. Those are up by nearly a third since last year. For the European Central Bank, he added, it will make the delicate task of balancing the risk of inflation with the risk of recession all the more difficult.For those living and working in Europe, it will mean less spending power in the short run. If wages don’t rise, they will be poorer.For now, Ukrainians, with strong kinship, cultural and religious ties in other European countries, have mostly been met with care packages and offers of free shelter, transportation and food.At the border in Siret, volunteers rushed up to Ukrainian families trudging up the road with offers of cups of hot tea and €5 cellphone SIM cards. Organizations, businesses and individuals jockeyed for a spot closest to the checkpoint to be the first to give chicken soup, kebabs, blankets, toothbrushes, stuffed animals and hats.The government in Bucharest has so far allocated $49 million to cover the costs. The prime minister, Nicolae Ciuca, said he expected the European Union to reimburse a big chunk of that.The E.U. has granted Ukrainians immediate permission to stay for up to three years, get a job and go to school — access that migrants from other parts of the globe could only dream of. And some countries, including Romania and Poland, have agreed to allow refugees to receive the same social and health services available to their own citizens.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    As Fed Prepares to Raise Rates, Global Economy Sinks Deeper Into Turmoil 

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    Federal Reserve officials are set to raise interest rates to control inflation, but the return to normal they had hoped to see remains painfully elusive.WASHINGTON — When Federal Reserve officials raise interest rates on Wednesday, they will do so amid an unfortunate economic reality: Many of the inflationary pressures they had long assumed would dissipate have instead lingered, and some are getting worse.Central bankers have consistently underestimated how high inflation would rise, and how long it would last, as the economy has surged back from pandemic shutdowns. They will release a fresh set of quarterly economic projections Wednesday, in which they are likely to raise their inflation forecasts for the fifth time in a row.Like many private sector forecasters, the Fed misjudged how strong American demand would be for goods and how long that demand would help to keep global supply chains running behind schedule, forces that have combined to push up consumer prices.Officials spent much of the past year expecting a relatively quick return to some pandemic-infused version of normality, but backlogged factories, crowded ports and overburdened trucking companies are still failing to catch up. Repeated waves of the virus have exacerbated the problems, which along with rising wages and services prices have sent inflation higher. Consumer price gains hit a new 40-year high in February, pushed up by rising prices for food, rent and gas.Now, as Fed officials prepare to begin a series of interest rate increases to try to bring inflation under control, they again appear to be aiming at a moving target. Supply chains that showed signs of improvement in January and February are being thrown further into disarray by the Russian invasion of Ukraine and sweeping lockdowns in China, developments that promise to lengthen delivery times and add to prices.The war, at the nexus of Europe and Asia, has scrambled flights and ocean shipments; threatened supplies of palladium, nickel and wheat; and sent energy prices soaring, further fueling inflation. Automakers have shuttered factories because of a shortage of parts, and Russia has answered back to sweeping sanctions imposed by the West by announcing its own plans for export controls.In recent days, Chinese cities and provinces have imposed extensive lockdowns to try to stop the spread of the Omicron variant. Shenzhen, a hub of electronics manufacturing and a vital port that is home to 17 million people, announced a lockdown on Sunday night for seven days. Foxconn, a Taiwanese electronics firm that supplies Apple from factories there, said it would suspend operations. Further restrictions in China, home to more than a quarter of global manufacturing, are likely to reverberate through already-tangled supply chains and exacerbate inflation.“The question is whether this is going to be bad or very bad,” Phil Levy, chief economist at the logistics company FlexPort, said of the Chinese shutdowns in particular. He noted that this disruption came when shipping delays were already extreme.“If things get gummed up there, it will reverberate through the whole system,” he said, adding that it matters how long and how sweeping the shutdown proves. “These problems just build.”Mary Lovely, a senior fellow at the Peterson Institute for International Economics, said it was “hard to overstate” the importance of Shenzhen and its surrounding area for electronics, as well as for other industries, like metals, furniture and paper products.“I think it’s definitely going to have effect on supply chains,” she said. She added that she expected those pressures to translate more readily into increased prices than they did earlier in the pandemic.“Now we’re in a period with higher inflation, I think that suppliers may find it easier to pass those costs along, or take this opportunity to raise prices,” Ms. Lovely said.Fed officials have held interest rates near zero since March 2020 and are expected to raise them for the first time since 2018 on Wednesday. By making money more expensive to borrow and spend, the Fed is hoping to cool down demand and beat back inflation — helping conditions to even out when a return to “normal” has been painfully, and consistently, elusive.Quarantine workers in Shanghai on Monday. Further restrictions in China, home to more than a quarter of global manufacturing, are likely to exacerbate inflation and tangled supply chains.Qilai Shen for The New York TimesFed policymakers and Wall Street researchers alike thought that prices would fade as consumers began shifting their spending from imported goods back to movies, vacations and restaurants. That shift would help factories and shipping routes catch up with surging demand, as used car prices — which spiked last year — moderated. Those trends either haven’t happened, or they have been canceled out by increases in the prices of other products and services.Jason Furman, an economist at Harvard University, said many forecasters had been doing what investors sometimes refer to as “pricing to perfection”: assuming that everything is going to go well, even if that is not the most likely outcome.“You can look at the individual items: There’s been a lot of: What if inflation in X, Y, Z goes down?” he said. “And not: What if inflation in A, B, C goes up?”Many of the factors prompting economists to mark up their inflation forecasts now are not even tied to supply chains.Matthew Luzzetti, chief U.S. economist at Deutsche Bank, recently revised up his inflation projections because rent costs are rising so rapidly in the Consumer Price Index. Between that and wage growth, he thinks, high inflation will last unless the Fed intervenes.“For a while, inflation forecasters had been anticipating that the goods side of things would return to more normal dynamics” just as service prices, like rent, began to increase, he said. Services prices have indeed picked up, but normalization in good prices keeps getting “pushed out.”Consumers continue to spend a bigger share of their budgets on goods instead of services — purchases like travel and manicures — compared with before the pandemic. That has meant global producers are still struggling to keep up with demand. Even potentially short-lived disruptions, like the ones taking place in China, can add to a snowball of delays and shortages.Data released this month showed that the U.S. trade deficit hit a record in January, the height of the Omicron wave, in part because of surging imports of cars and energy. The average time to ship a container from a Chinese factory to a U.S. warehouse had stretched to 82 days in February, according to Freightos, a logistics platform, up from 45 days two years before.In many ways, the events of the past few years have been so unusual that few if any forecasters correctly predicted all of them. And Fed officials have acknowledged that they misjudged inflation last year, partly because they expected supply chains to recover more quickly.They are now striking a more wary tone.Jerome H. Powell, the Fed chair, told Congress this month that the war in Ukraine was “not going to help at all with supply chains.”“We haven’t seen much relief on the supply side,” he noted, explaining that he and his colleagues had been waiting for the strains to ease.Mr. Powell predicted that as the Fed raised interest rates this year, it would help cool off demand for car loans and mortgages, weakening spending in the economy and giving companies some room to catch up with demand. Central bankers are hoping that at the same time, the economy is “going back to normal” in terms of supply chains and the breakdown between goods and services, he said.Even so, he acknowledged that the Fed stood ready to act more aggressively if that didn’t happen.“We hope we’re getting help on the inflation front from a bunch of things,” Mr. Powell said. “In any case, we do have the responsibility to generate price stability, and we will use our tools to do that, over time.” More

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    Dollars or Rubles? Russian Debt Payments Are Due, and Uncertain.

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    Citing sanctions, the Russian government warned it might pay foreign debt obligations in rubles. Credit rating agencies say a default is imminent. Russia is teetering on the edge of a possible sovereign debt default, and the first sign could come as soon as Wednesday.The Russian government owes about $40 billion in debt denominated in U.S. dollars and euros, and half of those bonds are owned by foreign investors. And Russian corporations have racked up approximately $100 billion in foreign currency debt, JPMorgan estimates.On Wednesday, $117 million in interest payments on dollar-denominated government debt are due.But Russia is increasingly isolated from global financial markets, and investors are losing hope that they will see their money. As the government strives to protect what’s left of its access to foreign currency, it has suggested it would pay its dollar- or euro-denominated debt obligations in rubles instead. That has prompted credit rating agencies to warn of an imminent default.The Russian currency has lost nearly 40 percent of its value against the U.S. dollar in the past month. Even if the payments were made, economic sanctions would make it difficult for Western lenders to access the rubles if they are in Russian bank accounts.“It is not that Russia doesn’t have money,” Kristalina Georgieva, managing director of the International Monetary Fund, told reporters last week. The problem is, Russia can’t use a lot of its international currency reserves, she said, because they have been frozen by sanctions. “I’m not going to speculate what may or may not happen, but just to say that no more we talk about Russian default as an improbable event.”Last week, the chief economist of the World Bank said Russia and Belarus were squarely in “default territory,” and Fitch Ratings said a default was imminent because sanctions had diminished Russia’s willingness to repay its foreign debts.Russia last defaulted on its debt in 1998, when a currency crisis led it to default on ruble-denominated debt and temporarily ban foreign debt payments. The crisis shocked the financial world, leading to the collapse of the U.S. hedge fund Long-Term Capital Management, which required Federal Reserve intervention and a multibillion-dollar bailout. If Russia failed to make payments on its foreign currency debt, it would be its first such default since the 1917 Russian Revolution.Foreign investor interest in Russian assets fell in 2014 when sanctions were imposed after the country annexed Crimea, and never fully recovered before more sanctions were imposed by Washington in 2019. But holdings aren’t negligible. Russian government bonds were considered investment grade as recently as a few weeks ago, and were included in indexes used to benchmark other funds. JPMorgan estimates that international investors own 22 percent of Russian companies’ foreign currency debt.BlackRock, the world’s largest asset manager, has already incurred losses on Russian assets and equities.Jeenah Moon/BloombergFunds managed by BlackRock, the world’s largest asset manager, have incurred $17 billion in losses on Russian assets, including equities, in recent weeks, according to the firm. The loss in value has a number of causes, including investors selling their holdings.But so far, regulators have said the risk to global banking systems from a Russian default wouldn’t be systemic because of the limited direct exposure to Russian assets. The larger ramifications from the war in Ukraine and Russia’s economic isolation are from higher energy and food prices.Still, financial companies have been scrambling to assess their exposure, according to Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions.“I’m seeing a lot of clients that had exposure to the Russian market wondering what type of default scenarios might be coming up,” said Mr. Tannebaum, who is also a former Treasury Department official. In the case of a default, “those bonds become worthless, for lack of a better term,” he said.On Monday, Russia’s finance minister, Anton Siluanov, accused the countries that have frozen the country’s internationally held currency reserves of trying to create an “artificial default.” The government has the money to meet its debt obligations, he said, but sanctions were hampering its ability to pay. Mr. Siluanov had also said over the weekend that the country had lost access to about $300 billion of its $640 billion currency reserves.The government insists investors will be paid. The finance ministry said on Monday it would send instructions to banks to issue the payment due on dollar- or euro-denominated bonds in dollars or euros, but if the banks don’t execute the order then it will be recalled and payment will be made in rubles instead. The statement also said that the payments could be made in rubles and then converted to another currency only when the country’s gold and foreign exchange reserves are unfrozen.Russia’s finance minister, Anton Siluanov, accused the countries that have frozen the country’s internationally held currency reserves of trying to create an “artificial default.”Alberto Pizzoli/Agence France-Presse — Getty Images“In any case, obligations to our investors will be met. And the ability to receive the funds in foreign currency will depend on the imposed restrictions,” Mr. Siluanov said.But the statement doesn’t provide a clear vision of what might happen on Wednesday. American sanctions allow for the receipt of payments of debt obligations until late May, and so the reasoning behind the Russian finance ministry’s claim that banks might refuse the payments is unclear. The payments due on Wednesday also have a 30-day grace period, so a default wouldn’t technically happen until mid-April. But Russia has already blocked interest payments on ruble-denominated bonds to nonresidents, a sign of its hesitancy to transfer funds abroad.While the Russian finance ministry said it could meet its obligations by paying in rubles, others disagreed.“In order to avoid a default, the only way that Russia can really navigate this is to send the full payment in dollars,” said Trang Nguyen, an emerging markets strategist at JPMorgan.Some Russian bonds issued in recent years do have provisions that allow for repayment in other currencies, including the ruble, if Russia can’t make payments in dollars for reasons “beyond its control.” The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Could Inflation Prompt Powell to Act Like Volcker?

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    The Federal Reserve is facing the fastest inflation most Americans have ever seen. Its chair says policymakers will do what it takes to tame prices.To Jerome H. Powell, the chair of the Federal Reserve, Paul Volcker is more than a predecessor. He is one of his professional heroes.“I knew Paul Volcker,” Mr. Powell said during congressional testimony this month. “I think he was one of the great public servants of the era — the greatest economic public servant of the era.”Now, if rapid inflation proves more stubborn than policymakers expect, Mr. Powell could find himself in a situation in which he must follow Mr. Volcker’s lead. The towering former Fed chair is best remembered for waging an aggressive — and painful — assault on the swift price increases that plagued America in the early 1980s.Mr. Volcker’s Fed rolled out policies that pushed a key short-term interest rate to nearly 20 percent and sent unemployment soaring to nearly 11 percent in 1981. Car dealers mailed the Fed keys from unsold vehicles, builders sent two-by-fours from unbuilt houses and farmers drove tractors around the Fed building in Washington in protest. But the approach worked, killing off the rapid price inflation that had festered throughout the 1970s.Mr. Powell was asked this month if the Fed was prepared to do whatever it took to control inflation — even if it meant harming growth, as Mr. Volcker did.“I hope that history will record that the answer to your question is yes,” the Fed chair replied.Few, if any, economists think that the 2022 Fed will need to repeat Mr. Volcker’s policies to the same degree, in part because the central bank is taking action much more quickly. The Fed is expected to begin raising interest rates from near zero at its meeting this week, and is likely to signal that it expects to make a series of moves this year as it tries to cool down the economy and control inflation.Price increases had run high for more than a decade by the time Mr. Volcker became chair in 1979, making them a part of everyday lives. Shoppers expected prices to go up, businesses knew that, and both acted accordingly.This time, inflation has been anemic for years (until recently), and most consumers and investors still expect costs to return to lower levels before long, survey and market data show. While inflation has been rapid for the past year, that is a comparatively short period and one that may not fuel the same kind of expectations for higher prices that bedeviled Mr. Volcker’s era.And while today’s inflation is taking a bite out of household budgets, it is slower than in previous periods: While it rose to 7.9 percent in February, the fastest pace since 1982, it is still well below a peak of 14.6 percent in 1980. Economists expect price gains to begin moderating this year, rather than climbing to such high levels.But in other ways, the backdrop Mr. Powell faces is beginning to look eerily similar to the one Mr. Volcker confronted.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: Times readers sent us their questions about rising prices. Top experts and economists weighed in.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.Wages are increasing rapidly, and employers report raising prices to cover their bigger labor bills, posing the possibility of a more muted version of the wage-price spiral that helped keep inflation high during Mr. Volcker’s years.President Ronald Reagan with Paul A. Volcker, the Fed chair, in 1981.Scott Applewhite/Associated PressOil prices are climbing as Russia wages war on Ukraine, mirroring oil price shocks that rocked the economy in the years before Mr. Volcker’s ascent to the chair. The Arab oil embargo of 1973-74 and the Iranian revolution of 1979 both curtailed supply and sharply pushed up pump prices.And geopolitical instability is fueling uncertainty about what will happen next, much as it did in the 1970s, when war raged in Vietnam.“That’s the proper historical reference for what we’re trying not to replicate,” Mr. Powell said of the 1970s during separate remarks to Congress this month. “One of the things that is different now is that central banks — including the Fed — very squarely take responsibility for inflation.”When inflation was taking off in the 1960s and 1970s, Fed officials bickered about how high to raise rates as they worried about hurting the labor market too much. Many economic historians now think that their reluctance to act more quickly allowed those price gains to become locked in until they required a more draconian response.“The one really big difference — huge difference, consequential difference — is that the Fed, and the country, lived through the 1970s,” Donald Kohn, a former Fed vice chair, said in an interview. “I think the Fed is determined not to let us get there.”The inflation challenge facing Mr. Powell, who was renominated by President Biden for a second term as chair and is awaiting Senate confirmation, is the latest economic test that he has had to contend with during his tenure.Mr. Powell, 69, began his first four years as Fed chair in early 2018. By that Christmas, the central bank’s campaign of steady rate increases intended to fend off inflation had collided with President Donald J. Trump’s trade war to send markets plummeting.In 2019, Mr. Trump publicly pushed for lower rates and accosted Mr. Powell — whom the president had chosen to lead the central bank — in interviews and on Twitter, calling him a “bonehead,” an “enemy” and a golfer who could not putt.Then came the onset of the pandemic in 2020, and Mr. Powell and his colleagues crossed red lines and upended norms to rescue markets and the economy. They averted a financial crisis, but 2021 brought with it a new challenge: rapid inflation.Now, critics are questioning whether the monetary help that Mr. Powell’s Fed unleashed to protect the pandemic-stricken economy — lowering rates to near zero and buying trillions of dollars in government bonds — combined with huge fiscal stimulus to supercharge demand and release an inflationary genie that could prove hard to trap.The Fed has already begun removing some of that support, stopping bond purchases and communicating plans to raise interest rates by a quarter-point this month and steadily throughout the rest of the year. Mortgage rates have already begun climbing in anticipation of those actions.But some are asking whether the Fed, which wanted to see full employment return before paring back its support, has been too slow to react to changing conditions.This moment “represents a decade of economic experience in the late 1960s and 1970s, compressed into a year,” said Lawrence H. Summers, a former Treasury secretary who spent last year warning that inflation was going to take off as the government overstimulated the economy.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Economic Ties Among Nations Spur Peace. Or Do They?

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    The Russian invasion of Ukraine strains the long-held idea that shared interests around business and commerce can deflect military conflict.Russia’s war in Ukraine is not only reshaping the strategic and political order in Europe, it is also upending long-held assumptions about the intricate connections that are a signature of the global economy.Millions of times a day, far-flung exchanges of money and goods crisscross land borders and oceans, creating enormous wealth, however unequally distributed. But those connections have also exposed economies to financial upheaval and crippling shortages when the flows are interrupted.The snarled supply lines and shortfalls caused by the pandemic created a wide awareness of these vulnerabilities. Now, the invasion has delivered a bracing new spur to governments in Europe and elsewhere to reassess how to balance the desire for efficiency and growth with the need for self-sufficiency and national security.And it is calling into question a tenet of liberal capitalism — that shared economic interests help prevent military conflicts.It is an idea that stretches back over the centuries and has been endorsed by romantic idealists and steely realists. The philosophers John Stuart Mill and Immanuel Kant wrote about it in treatises. The British politicians Richard Cobden and John Bright invoked it in the 19th century to repeal the protectionist Corn Laws, the tariffs and restrictions imposed on imported grains that shielded landowners from competition and stifled free trade.Later, Norman Angell was awarded the Nobel Peace Prize for writing that world leaders were under “A Great Illusion” that armed conflict and conquest would bring greater wealth. During the Cold War, it was an element of the rationale for détente with the Soviet Union — to, as Henry Kissinger said, “create links that will provide incentive for moderation.”German Chancellor Olaf Scholz in Moscow last month. Since the fall of the Soviet Union, policies by Germany and other European countries have been partly shaped by the idea that economic ties with Russia could deflect conflict.Pool photo by Maxim ShemetovSince the disintegration of the Soviet Union three decades ago, the idea that economic ties can help prevent conflict has partly guided the policies toward Russia by Germany, Italy and several other European nations.Today, Russia is the world’s largest exporter of oil and wheat. The European Union was its biggest trading partner, receiving 40 percent of its natural gas, 25 percent of its oil and a hefty portion of its coal from Russia. Russia also supplies other countries with raw materials like palladium, titanium, neon and aluminum that are used in everything from semiconductors to car manufacturing.Just last summer, Russian, British, French and German gas companies completed a decade-long, $11 billion project to build a direct pipeline, Nord Stream 2, that was awaiting approval from a German regulator. But Germany halted certification of the pipeline after Russia recognized two separatist regions in Ukraine.From the start, part of Germany’s argument for the pipeline — the second to connect Russia and Germany — was that it would more closely align Russia’s interests with Europe’s. Germany also built its climate policy around Russian oil and gas, assuming it would provide energy as Germany developed more renewable sources and closed its nuclear power plants.Benefits ran both ways. Globalization rescued Russia from a financial meltdown and staggering inflation in 1998 — and ultimately smoothed the way for the rise to power of Vladimir V. Putin, Russia’s president. Money earned from energy exports accounted for a quarter of Russia’s gross domestic product last year.The Nord Stream 2 plant in Germany. The pipeline had been seen as a way to align Russia’s interests with those of Germany. Now it has been shelved.Michael Sohn/Associated PressCritics of Nord Stream 2, particularly in the United States and Eastern Europe, warned that increasing reliance on Russian energy would give it too much leverage, a point that President Ronald Reagan made 40 years earlier to block a previous pipeline. Europeans were still under an illusion, the argument went, only this time it was that economic ties would prevent baldfaced aggression.Still, more recently, those economic ties contributed to skepticism that Russia would launch an all-out attack on Ukraine in defiance of its major trading partners.In the weeks leading up to the invasion, many European leaders demurred from joining what they viewed as the United States’ overhyped warnings. One by one, French President Emmanuel Macron, German Chancellor Olaf Scholz and Italian Prime Minister Mario Draghi talked or met with Mr. Putin, hopeful that a diplomatic settlement would prevail.There are good reasons for the European Union to believe that economic ties would bind potential combatants more closely together, said Richard Haass, president of the Council on Foreign Relations. The proof was the European Union itself. The organization’s roots go back to the creation after World War II of the European Coal and Steel Community, a pact among six nations meant to avert conflict by pooling control of these two essential commodities.“The idea was that if you knit together the French and German economies, they wouldn’t be able to go to war,” Mr. Haass said. The aim was to prevent World War III.Scholars have attempted to prove that the theory worked in the real world — studying tens of thousands of trade relations and military conflicts over several decades — and have come to different conclusions.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More