Russian Invasion of Ukraine (2022)

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    Soaring Cost of Diesel Ripples Through the Global Economy

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    Farmers are spending more to keep tractors and combines running. Shipping and trucking companies are passing higher costs to retailers, which are beginning to pass them on to shoppers. And local governments are paying hundreds of thousands of dollars extra to fill up school buses. Construction costs could soon rise, too.The source is the sudden surge in the price of diesel, which is quietly undercutting the American and global economies by pushing up inflation and pressuring supply chains from manufacturing to retail. It is one more cost of the war in Ukraine. Russia is a major exporter of both diesel and the crude oil that diesel is made from in refineries.Car owners in the United States have been shocked by gasoline prices of more than $4 a gallon, but there has been an even bigger increase in the price of diesel, which plays a critical role in the global economy because it powers so many different kinds of vehicles and equipment. A gallon of diesel is selling for an average of $5.19 in the United States, according to government figures, up from $3.61 in January. In Germany, the retail price has shot up to 2.15 euros a liter, or $9.10 a gallon, from €1.66 at the end of February, according to ADAC, the country’s version of AAA.Fueling stations in Argentina have begun rationing diesel, jeopardizing one of the world’s leading agricultural economies, and energy analysts warn that the same could soon happen in Europe, where some businesses report spending twice as much on diesel as they did a year ago.“Not only is it a historic level, but it’s increased at a historic pace,” said Mac Pinkerton, president of North American surface transportation for C.H. Robinson, which provides supply chain services to trucking companies and other customers. “We have never experienced anything like this before.”The sharp jump is putting immense pressure on trucking firms, especially smaller operations that are already suffering from driver shortages and scarce spare parts. Many can pass increased fuel costs on to their customers only after a few weeks or months.Eventually consumers will feel the effect in higher prices for all manner of goods. While hard to quantify, inflation will be most visible for big-ticket items like automobiles or home appliances, economists say.“Really, everything that we buy online or in a store is on a truck at some point,” said Bob Costello, the chief economist for American Trucking Associations.Trucks lining up on Terminal Island between the Port of Long Beach and the Port of Los Angeles.Alex Welsh for The New York TimesManufacturers are also heavy users of diesel, leading to higher prices for factory goods. Food will go up in price because farm equipment generally runs on diesel.“It’s not just the fuel we put into pickups, tractors, combines,” said Chris Edgington, an Iowa corn farmer. “It’s a cost of transporting those goods to the farm, it’s a cost of transporting them away.”At the start of the pandemic, diesel prices dropped steeply as the global economy slowed, factories shut down and stores closed. But beginning in early 2021 there was a sharp rebound as truck and rail traffic resumed. Prices, which increased pretty steadily last year, picked up momentum in January as Russia massed troops near Ukraine and then invaded. Low stockpiles of the fuel, particularly in Europe, have added to the price pressures.“Diesel is the most sensitive, the most cyclical product in the oil industry,” said Hendrik Mahlkow, a researcher at the Kiel Institute for the World Economy in Germany who has studied commodity prices. “Rising prices will distribute through the whole value chain.”Refineries, which turn crude oil into fuels that can be used in cars and trucks, have tried to play catch-up on both sides of the Atlantic in recent months. But they have not been able to make more diesel, gasoline and jet fuel fast enough. That is in part because refineries have closed in Europe and North America in recent years and more of the world’s fuels are being refined in Asia and the Middle East.Since January 2019, refinery capacity has declined 5 percent in the United States and 6 percent in Europe, according to Turner, Mason & Company, a consulting firm in Dallas.Europe is particularly vulnerable because it relies on Russia for as much as 10 percent of its diesel. Europe’s own diesel production is also dependent on Russia, which is a big supplier of crude oil to the continent. Some analysts say Europe may have to begin rationing diesel as early as next month unless the shortage eases.Diesel prices and Germany’s dependence on Russian energy were among the factors that on Wednesday prompted Germany’s Council of Economic Experts to cut its forecast for growth in 2022 by more than half, to 1.8 percent.Russian diesel has been flowing to Europe since the invasion last month, but traders, banks, insurance companies and shippers are increasingly turning away from the country’s diesel, oil and other exports.Several large European oil companies have announced that they are leaving Russia. TotalEnergies, the French oil giant, said this month that it would stop buying Russian diesel and oil by the end of the year.The market for oil and diesel is global, and companies can usually find another source if their main supplier can’t deliver. But no oil company or country can quickly make up for the loss of Russian energy.Saudi Arabia, for example, has not increased diesel exports because one of its largest refineries is undergoing maintenance. The kingdom and its allies in OPEC Plus have also refused to ramp up crude oil production because they are happy to have oil prices stay high. Russia belongs to the group and has significant sway over its fellow members.Christine Hemmel is a manager of a trucking company in Ober-Ramstadt, Germany, that has been in her family for four generations. Her family’s business has almost all the challenges that medium-size haulers have faced since the pandemic’s outbreak.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Russia-Ukraine War Is Reshaping How Europe Spends

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    Romania is buying iodine pills. Ireland enacted special incentives for its farmers to till essential crops. And military spending is rising across the continent.Nicolae Ciuca spent a lifetime on the battlefield before being voted in as prime minister of Romania four months ago. Yet even he did not imagine the need to spend millions of dollars for emergency production of iodine pills to help block radiation poisoning in case of a nuclear blast, or to raise military spending by 25 percent in a single year.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” Mr. Ciuca, a retired general, said through a translator at Victoria Palace, the government’s headquarters in Bucharest. “We never expected this kind of war in the 21st century.”Across the European Union and Britain, Russia’s invasion of Ukraine is reshaping spending priorities and forcing governments to prepare for threats thought to have been long buried — from a flood of European refugees to the possible use of chemical, biological and even nuclear weapons by a Russian leader who may feel backed into a corner.The result is a sudden reshuffling of budgets as military spending, essentials like agriculture and energy, and humanitarian assistance are shoved to the front of the line, with other pressing needs like education and social services likely to be downgraded.The most significant shift is in military spending. Germany’s turnabout is the most dramatic, with Chancellor Olaf Scholz’s promise to raise spending above 2 percent of the country’s economic output, a level not reached in more than three decades. The pledge included an immediate injection of 100 billion euros — $113 billion — into the country’s notoriously threadbare armed forces. As Mr. Scholz put it in his speech last month: “We need planes that fly, ships that sail and soldiers who are optimally equipped.”The commitment is a watershed moment for a country that has sought to leave behind an aggressive military stance that contributed to two devastating world wars.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” said Nicolae Ciuca, prime minister of Romania.Cristian Movila for The New York TimesA wartime mind-set has also spread to sectors aside from defense. With prices soaring for oil, animal feed and fertilizer, Ireland introduced a “wartime tillage” program last week to amp up grain production, and created a National Fodder and Food Security Committee to manage threats to the food supply.Farmers will be paid up to €400 for every additional 100-acre block that is planted with a cereal crop like barley, oats or wheat. Planting additional protein crops like peas and beans will earn a €300 subsidy.“The illegal invasion in Ukraine has put our supply chains under enormous pressure,” Charlie McConalogue, the agriculture minister, said in announcing the $13.2 million package. Russia is the world’s largest supplier of wheat and with Ukraine accounts for nearly a quarter of total global exports.Spain has been running down its supplies of corn, sunflower oil and some other produce that also come from Russia and Ukraine. “We’ve got stock available, but we need to make purchases in third countries,” Luis Planas, the agriculture minister, told a parliamentary committee.Mr. Planas has asked the European Commission to ease some rules on Latin American farm imports, like genetically modified corn for animal feed from Argentina, to offset the lack of supply.Extraordinarily high energy prices have also put intense pressure on governments to cut excise taxes or approve subsidies to ease the burden on families that can’t afford to heat every room in their home or fill their car’s gas tank.Ireland reduced gasoline taxes, and approved an energy credit and a lump-sum payment for lower-income households. Germany announced tax breaks and a $330-per-person energy subsidy, which will end up costing the treasury $17.5 billion.Ireland introduced a “wartime tillage” program last week to increase grain production.Niall Carson – PA Images, via Getty ImagesIn Spain, the government agreed last week to defray the cost of gasoline in response to several days of strikes by truckers and fishermen, which left supermarkets without fresh supplies of some of their most basic items.And in Britain, a cut in fuel taxes and support for poorer households will cost $3.2 billion.The outlook is a change from October, when Rishi Sunak, Britain’s chancellor of the Exchequer, announced a budget for what he called an “economy fit for a new age of optimism,” with large increases in education, health and job training.In his latest update to Parliament, Mr. Sunak warned that “we should be prepared for the economy and public finances to worsen potentially significantly,” as the country faces the biggest drop in living standards it has ever seen.The energy tax relief was welcomed by the public, but the reduced revenues put even more pressure on governments that are already managing record high debt levels.“The problem is that some countries have quite a big chunk of legacy debt — in Italy and France, it’s over 100 percent of gross domestic product,” said Lucrezia Reichlin, an economics professor at the London Business School, referring to the huge amounts spent to respond to the pandemic. “That is something which is very much new for the economic governance of the union.” European Union rules, which were temporarily suspended in 2020 because of the coronavirus, limit government debt to 60 percent of a country’s economic output.And the demands on budgets are only increasing. European Union leaders said this month that the bill for new defense and energy spending could run as high as $2.2 trillion.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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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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    Biden Plans Sanctions on Russian Lawmakers as He Heads to Europe

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    A chief goal of the meetings this week is to show that Russia’s invasion of Ukraine will not lead to sniping and disagreement among the United States and its allies.WASHINGTON — President Biden will announce sanctions this week on hundreds of members of Russia’s lower house of Parliament, according to a White House official familiar with the announcement, as the United States and its allies reach for even stronger measures to punish President Vladimir V. Putin for his monthlong invasion of Ukraine.The announcement is scheduled to be made during a series of global summits in Europe on Thursday, when Mr. Biden will press Western leaders for even more aggressive economic actions against Russia as its forces continue to rain destruction on cities in Ukraine.In Brussels on Thursday, Mr. Biden and other leaders will announce a “next phase” of military assistance to Ukraine, new plans to expand and enforce economic sanctions, and an effort to further bolster NATO defenses along the border with Russia, Jake Sullivan, the White House national security adviser, said on Tuesday.“The president is traveling to Europe to ensure we stay united, to cement our collective resolve, to send a powerful message that we are prepared and committed to this for as long as it takes,” Mr. Sullivan told reporters.Officials declined to be specific about the announcements, saying the president will wrap up the details of new sanctions and other steps during his deliberations in Brussels. But Mr. Biden faces a steep challenge as he works to confront Mr. Putin’s war, which Mr. Sullivan said “will not end easily or rapidly.”The sanctions on Russian lawmakers, which were reported earlier by The Wall Street Journal, will affect hundreds of members of the State Duma, the lower house of Parliament, according to the official, who requested anonymity to discuss diplomatic deliberations that have not yet been publicly acknowledged.Earlier this month, the United States announced financial sanctions on 12 members of the Duma. The announcement on Thursday will go far beyond those sanctions in what one senior official called a “very sweeping” action. Another official said details of the sanctions were still being finalized.The NATO alliance has already pushed the limits of economic sanctions imposed by European countries, which are dependent on Russian energy. And the alliance has largely exhausted most of its military options — short of a direct confrontation with Russia, which Mr. Biden has said could result in World War III.That leaves the president and his counterparts with a relatively short list of announcements they can deliver on Thursday after three back-to-back, closed-door meetings. Mr. Sullivan said there will be “new designations, new targets” for sanctions inside Russia. And he said the United States would make new announcements about efforts to help European nations wean themselves off Russian energy.Still, the chief goal of the summits — which have come together in just a week’s time through diplomats in dozens of countries — may be a further public declaration that Mr. Putin’s invasion will not lead to sniping and disagreement among the allies.Despite Russia’s intention to “divide and weaken the West,” Mr. Sullivan said, the allies in Europe and elsewhere have remained “more united, more determined and more purposeful than at any point in recent memory.”A damaged residential building in Kyiv, Ukraine, on Friday.Ivor Prickett for The New York TimesSo far, that unity has done little to limit the violence in Ukraine. The United States and Europe have already imposed the broadest array of economic sanctions ever on a country of Russia’s size and wealth, and there have been early signs that loopholes have blunted some of the bite that the sanctions on Russia’s central bank and major financial institutions were intended to have on its economy.Despite speculation that Russia might default on its sovereign debt last week, it was able to make interest payments on $117 million due on two bonds denominated in U.S. dollars. And after initially plunging to record lows this month, the ruble has since stabilized.Russia was able to avert default for now because of an exception built into the sanctions that allowed it to continue making payments in dollars through May 25. That loophole protects foreign investors and gives Russia more time to devastate Ukraine without feeling the full wrath of the sanctions.Meanwhile, although about half of Russia’s $640 billion in foreign reserves is frozen, it has been able to rebuild that by continuing to sell energy to Europe and other places.“The fact that Russia is generating a large trade and current account surplus because of energy exports means that Russia is generating a constant hard currency flow in euros and dollars,” said Robin Brooks, the chief economist at the Institute of International Finance. “If you’re looking at sanctions evasion or the effectiveness of sanctions, this was always a major loophole.”The president is scheduled to depart Washington on Wednesday morning before summits on Thursday with NATO, the Group of 7 nations and the European Council, a meeting of all 27 leaders of European Union countries. On Friday, Mr. Biden will head to Poland, where he will discuss the Ukrainian refugees who have flooded into the country since the start of the war. He will also visit with American troops stationed in Poland as part of NATO forces.Mr. Biden is expected to meet with President Andrzej Duda of Poland on Saturday before returning to the White House later that day.White House officials said a key part of the announcements in Brussels would be new enforcement measures aimed at making sure Russia is not able to evade the intended impact of sanctions.“That announcement will focus not just on adding new sanctions,” Mr. Sullivan said, “but on ensuring that there is a joint effort to crack down on evasion on sanctions-busting, on any attempt by any country to help Russia basically undermine, weaken or get around the sanctions.”He added later, “So stay tuned for that.”Sanctions experts have suggested that Western allies could allow Russian energy exports to continue but insist that payments be held in escrow accounts until Mr. Putin halts the invasion. That would borrow from the playbook the United States used with Iran, when it allowed some oil exports but required the revenue from those transactions to be held in accounts that could be used only to finance bilateral trade.Russia-Ukraine War: Key DevelopmentsCard 1 of 3A new diplomatic push. More

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    Ukraine War and Pandemic Force Nations to Retreat From Globalization

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    WASHINGTON — When the Cold War ended, governments and companies believed that stronger global economic ties would lead to greater stability. But the Ukraine war and the pandemic are pushing the world in the opposite direction and upending those ideas.Important parts of the integrated economy are unwinding. American and European officials are now using sanctions to sever major parts of the Russian economy — the 11th largest in the world — from global commerce, and hundreds of Western companies have halted operations in Russia on their own. Amid the pandemic, companies are reorganizing how they obtain their goods because of soaring costs and unpredictable delays in global supply chains.Western officials and executives are also rethinking how they do business with China, the world’s second-largest economy, as geopolitical tensions and the Chinese Communist Party’s human rights abuses and use of advanced technology to reinforce autocratic control make corporate dealings more fraught.The moves reverse core tenets of post-Cold War economic and foreign policies forged by the United States and its allies that were even adopted by rivals like Russia and China.“What we’re headed toward is a more divided world economically that will mirror what is clearly a more divided world politically,” said Edward Alden, a senior fellow at the Council on Foreign Relations. “I don’t think economic integration survives a period of political disintegration.”“Does globalization and economic interdependence reduce conflict?” he added. “I think the answer is yes, until it doesn’t.”Opposition to globalization gained momentum with the Trump administration’s trade policies and “America First” drive, and as the progressive left became more powerful. But the pandemic and President Vladimir V. Putin’s invasion of Ukraine have brought into sharp relief the uncertainty of the existing economic order.President Biden warned President Xi Jinping of China on Friday that there would be “consequences” if Beijing gave material aid to Russia for the war in Ukraine, an implicit threat of sanctions. China has criticized sanctions on Russia, and Le Yucheng, the vice foreign minister, said in a speech on Saturday that “globalization should not be weaponized.” Yet China increasingly has imposed economic punishments — Lithuania, Norway, Australia, Japan and South Korea have been among the targets.The result of all the disruptions may well be a fracturing of the world into economic blocs, as countries and companies gravitate to ideological corners with distinct markets and pools of labor, as they did in much of the 20th century.Mr. Biden already frames his foreign policy in ideological terms, as a mission of unifying democracies against autocracies. Mr. Biden also says he is enacting a foreign policy for middle-class Americans, and central to that is getting companies to move critical supply chains and manufacturing out of China.The goal is given urgency by the hobbling of those global links over two years of the pandemic, which has brought about a realization among the world’s most powerful companies that they need to focus on not just efficiency and cost, but also resiliency. This month, lockdowns China imposed to contain Covid-19 outbreaks have once again threatened to stall global supply chains.The Chinese city of Shenzhen was shut down due to Covid concerns last week, threatening the global supply chain.Kin Cheung/Associated PressThe economic impact of such a change is highly uncertain. The emergence of new economic blocs could accelerate a massive reorganization in financial flows and supply chains, potentially slowing growth, leading to some shortages and raising prices for consumers in the short term. But the longer-term effects on global growth, worker wages and supplies of goods are harder to assess.The war has set in motion “deglobalization forces that could have profound and unpredictable effects,” said Laurence Boone, the chief economist of the Organization for Economic Cooperation and Development.For decades, executives have pushed for globalization to expand their markets and to exploit cheap labor and lax environmental standards. China especially has benefited from this, while Russia profits from its exports of minerals and energy. They tap into enormous economies: The Group of 7 industrialized nations make up more than 50 percent of the global economy, while China and Russia together account for about 20 percent.Trade and business ties between the United States and China are still robust, despite steadily worsening relations. But with the new Western sanctions on Russia, many nations that are not staunch partners of America are now more aware of the perils of being economically tied to the United States and its allies.If Mr. Xi and Mr. Putin organize their own economic coalition, they could bring in other nations seeking to shield themselves from Western sanctions — a tool that all recent U.S. presidents have used.“Your interdependence can be weaponized against you,” said Dani Rodrik, a professor of international political economy at Harvard Kennedy School. “That’s a lesson that I imagine many countries are beginning to internalize.”The Ukraine war, he added, has “probably put a nail in the coffin of hyperglobalization.”China and, increasingly, Russia have taken steps to wall off their societies, including erecting strict censorship mechanisms on their internet networks, which have cut off their citizens from foreign perspectives and some commerce. China is on a drive to make critical industries self-sufficient, including for technologies like semiconductors.And China has been in talks with Saudi Arabia to pay for some oil purchases in China’s currency, the renminbi, The Wall Street Journal reported; Russia was in similar discussions with India. The efforts show a desire by those governments to move away from dollar-based transactions, a foundation of American global economic power.For decades, prominent U.S. officials and strategists asserted that a globalized economy was a pillar of what they call the rules-based international order, and that trade and financial ties would prevent major powers from going to war. The United States helped usher China into the World Trade Organization in 2001 in a bid to bring its economic behavior — and, some officials hoped, its political system — more in line with the West. Russia joined the organization in 2012.But Mr. Putin’s war and China’s recent aggressive actions in Asia have challenged those notions.“The whole idea of the liberal international order was that economic interdependence would prevent conflict of this kind,” said Alina Polyakova, president of the Center for European Policy Analysis, a research group in Washington. “If you tie yourselves to each other, which was the European model after the Second World War, the disincentives would be so painful if you went to war that no one in their right mind would do it. Well, we’ve seen now that has proven to be false.”“Putin’s actions have shown us that might have been the world we’ve been living in, but that’s not the world he or China have been living in,” she said.The United States and its partners have blocked Russia from much of the international financial system by banning transactions with the Russian central bank. They have also cut Russia off from the global bank messaging system called SWIFT, frozen the assets of Russian leaders and oligarchs, and banned the export from the United States and other nations of advanced technology to Russia. Russia has answered with its own export bans on food, cars and timber.The penalties can lead to odd decouplings: British and European sanctions on Roman Abramovich, the Russian oligarch who owns the Chelsea soccer team in Britain, prevent the club from selling tickets or merchandise.Ticket sales for Chelsea Football Club games were stopped after Britain and the European Union imposed sanctions on the club’s owner, Roman Abramovich, a Putin ally. Andy Rain/EPA, via ShutterstockAbout 400 companies have chosen to suspend or withdraw operations from Russia, including iconic brands of global consumerism such as Apple, Ikea and Rolex.Russia-Ukraine War: Key DevelopmentsCard 1 of 4Russia’s shrinking force. 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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    Powell Says Fed Could Raise Rates More Quickly to Tame Inflation

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    Jerome H. Powell, the Federal Reserve chair, said on Monday that the central bank was prepared to more quickly withdraw support from the economy if doing so proved necessary to bring rapid inflation under control.Mr. Powell signaled that the Fed could make big interest rate increases and push rates to relatively high levels in its quest to cool off demand and temper inflation, which is running at its fastest pace in 40 years. His comments were the clearest statement yet that the central bank was ready to forcefully attack rapid price increases to make sure that they do not become a permanent feature of the American economy.“There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability,” Mr. Powell said during remarks to a conference of business economists.Policymakers raised interest rates by a quarter point last week and forecast six more similarly sized increases this year. On Monday, Mr. Powell foreshadowed a potentially more aggressive path. A restrictive rate setting would squeeze the economy, slowing consumer spending and the labor market — a move akin to the Fed’s hitting the brakes rather than just taking its foot off the accelerator.“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Mr. Powell said. “And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”Asked what would keep the Fed from raising interest rates by half a percentage point at its next meeting in May, Mr. Powell replied, “Nothing.” He said the Fed had not yet made a decision on its next rate increase but noted that officials would make a supersized move if they thought one was appropriate.“The expectation going into this year was that we would basically see inflation peaking in the first quarter, then maybe leveling out,” Mr. Powell said. “That story has already fallen apart. To the extent that it continues to fall apart, my colleagues and I may well reach the conclusion that we’ll need to move more quickly.”Stocks fell in response to Mr. Powell’s comments and were down 0.6 percent by the time he finished speaking in the early afternoon; the S&P 500 index closed the day down 0.4 percent. Higher interest rates can push down stock prices as they pull money away from riskier assets — like shares in companies — and toward safer havens, like bonds, and as they make money more expensive to borrow for businesses. The yield on the benchmark 10-year Treasury note rose as high as 2.3 percent as Mr. Powell was speaking, and the yield on two-year Treasurys rose above 2 percent for the first time since 2019.Rising rates can especially hurt share prices if they tank economic growth or cause the economy to contract.While the Fed has often caused recessions by raising interest rates in a bid to slow down demand and cool off price increases, Mr. Powell voiced optimism that the central bank could avoid such an outcome this time, in part because the economy is starting from a strong place. Even so, he acknowledged that guiding inflation down without severely hurting the economy would be a challenge.“No one expects that bringing about a soft landing will be straightforward in the current context,” Mr. Powell said.But getting price gains under control is the Fed’s priority, and while the central bank had been hoping for inflation to fade as pandemic disruptions abate, Mr. Powell was adamant that it could no longer watch and wait for that to happen.In addition to raising rates, the Fed plans to reduce its large bond holdings by allowing securities to expire, which would push up longer-term borrowing costs, including mortgage rates, helping to take steam out of the economy. Mr. Powell emphasized that the balance sheet shrinking could begin imminently.Action on the balance sheet “could come as soon as our next meeting in May, though that is not a decision that we have made,” Mr. Powell said.The Fed is preparing to pull back support even as Russia’s invasion of Ukraine stokes economic uncertainty. The conflict has pushed energy prices higher, something that the Fed would typically discount, since it is likely to fade eventually. But Mr. Powell said it could not ignore the increase when inflation was already high.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    As Inflation Surges, Biden Targets Ocean Shipping

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    The president is targeting shipping companies that have jacked up prices during the pandemic, but critics say bigger economic forces are at work.With inflation surging at its fastest pace in 40 years, President Biden has identified a new culprit that he says is helping fuel America’s skyrocketing prices: The ocean vessels that ferry containers stuffed with foreign products to America’s shores each year.Shipping prices have soared since the pandemic, as rising demand for food, couches, electronics and other goods collided with shutdowns at factories and ports, leading to a shortage of space on ocean vessels as countries competed to get products from foreign shores to their own.The price to transport a container from China to the West Coast of the United States costs 12 times as much as it did two years ago, while the time it takes a container to make that journey has nearly doubled. That has pushed up costs for companies that source products or parts from overseas, seeping into what consumers pay.Mr. Biden has pledged to try to lower costs by increasing competition in the shipping industry, which is dominated by a handful of foreign-owned ocean carriers. He has cited the industry’s record profits and directed his administration to provide more support for investigations into antitrust violations and other unfair practices.Congress is also considering legislation that would hand more power to the Federal Maritime Commission, an independent agency that polices international ocean transportation on behalf American companies and consumers.The bill, which has bipartisan support, would authorize the commission to take action against anticompetitive behavior, require shipping companies to comply with certain service standards and regulate how they impose certain fees on their customers. Mr. Biden is pushing lawmakers to add a provision that would allow the commission and Justice Department to review applications for new alliances between companies for antitrust issues, and reject those that are not in the public interest.The House passed its version of the bill in December; it must be reconciled with a Senate version.But it’s unclear to what extent more government oversight and enforcement will actually bring down shipping costs, which are being driven in large part by soaring consumer demand and persistent bottlenecks. Global supply chains are still plagued by delays and disruptions, including those stemming from the Russian invasion of Ukraine and China’s broad lockdowns in Shenzhen, Shanghai and elsewhere.“As a standard matter of economics, if you have inelastic supply and experience a surge in demand, you will see a rise in prices,” said Phil Levy, the chief economist at Flexport, a logistics company.The effect is expected to worsen in the coming months. Shipping rates typically take 12 to 18 months to fully pass through to consumer prices, said Nicholas Sly, an economist at the Federal Reserve Bank of Kansas City.“The goods that are being affected by shipping costs today are really the goods that consumers and American households are going to be buying many months from now, and that’s why those costs tend to show up later,” he said.Some of the price increases from late last summer have yet to work their way through into consumers, he said, and the conflict in Ukraine is causing further disruptions.Shipping prices have already skyrocketed so high that, for some products, they have erased companies’ profit margins.The cost to ship a container of goods from Asia to the U.S. West Coast surged to $16,353 as of March 11, nearly triple what it was last year, according to data from Freightos, a freight booking platform. While supply chain congestion showed some signs of easing in January and February, the Russian invasion of Ukraine has quickly worsened the situation along with lockdowns in China that have closed factories and warehouses.Analysts at Capital Economics, in a research note on Wednesday, said that it was still possible for China to suppress coronavirus infections without causing widespread disruption to global supply chains. “But the risk that global supply chains links within China get severed is the highest that it has been in two years,” they said.American businesses that use ocean carriers have been pushing for additional oversight of what they say is an opaque, lightly regulated industry.One of the main complaints among importers and exporters is that ocean carriers are charging customers huge and unexpected fees for delays in picking up or returning shipping containers, which are often mired in congestion in the ports or in warehouses. American farmers, who have struggled to get their goods overseas, say that ocean liners have refused to wait in port to load outgoing cargo or skipped some congested ports entirely. As a result, some have periodically been unable to get their products out of the United States.Eric Byer, the chief executive of the National Association of Chemical Distributors, said American companies were having trouble getting chlorine to clean swimming pools, citric acid to make soft drinks and phosphoric acid to add to fertilizer through American ports.“It’s taking weeks upon months, and they’re getting nickelled and dimed on costs. There are a lot of fees that are being imposed on products waiting in the San Pedro Bay,” he said, referring to the body of water outside the busy California ports of Los Angeles and Long Beach.“It’s been a lot of turmoil and challenges, a lot of unreliability,” said Patti Smith, the chief executive of DairyAmerica, which exports milk powder to foreign factories to be made into baby formula. Her company has sometimes been unable to get its products out of West Coast ports, she said, and has racked up extra warehousing costs and unexpected fines because of the delays.While Ms. Smith said she supported the administration’s efforts to enhance oversight of the shipping industries, she wasn’t sure that would do much to bring down overall prices.“I wouldn’t say it would necessarily lower prices. I think it might put prices more on a level playing field,” she said.The White House insists that its efforts can drive down costs, portraying the measures Mr. Biden announced as a way to calm skyrocketing inflation, which has become a huge economic concern among voters. Consumer prices surged 7.9 percent in the year to February, a 40-year high.American demand for foreign products, and for space on container ships, shows little sign of easing.Erin Schaff/The New York TimesThe White House has pointed to rapid consolidation in the industry over the past decade as a driver of higher prices, saying that three global shipping alliances now control 80 percent of global container ship capacity, and increased shipping costs would continue to fuel inflation. “Because of their market power, these alliances are able to cancel or change bookings and impose additional fees without notice,” the administration said in a fact sheet.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More