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    White House Prepares Curbs on Russia’s Access to U.S. Technology

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    Biden administration officials have warned Russia that it could face further restrictions on technology that is critical to its economy and military.The Biden administration warned on Wednesday that it had prepared additional measures aimed at cutting off Russia from advanced technology critical to its economy and military in the event of further aggression by President Vladimir V. Putin toward Ukraine.The United States on Tuesday announced sanctions on two Russian banks and curbs on Russia’s sovereign debt, effectively isolating the country from Western financing. President Biden also announced further sanctions on the Nord Stream 2 natural gas pipeline and its corporate officers.Export controls could ratchet up the pressure on Russia by preventing the country from obtaining semiconductors and other advanced technology used to power Russia’s aerospace, military and tech industries.“If he chooses to invade, what we’re telling him very directly is that we’re going to cut that off, we’re going to cut him off from Western technology that’s critical to advancing his military, cut him off from Western financial resources that will be critical to feeding his economy and also to enriching himself,” Wally Adeyemo, the deputy Treasury secretary, said on CNBC on Wednesday.The Biden administration has not clarified what specific restrictions it would impose on the products Russia imports. But the actions and statements of administration officials suggest they could repurpose a novel measure that the Trump administration turned to to cripple the business of Huawei, a Chinese telecom company, in 2020, export control specialists said.The tool, called the foreign direct product rule, allows U.S. officials to block more than just exports from the United States to Russia, which totaled just $4.9 billion in 2020. It also allows American officials to restrict exports to Russia from any country in the world if they use American technology, including software or machinery.Companies can seek licenses to sidestep the restrictions but they are likely to be denied.Daleep Singh, the deputy national security adviser, said on Friday that the administration was “converging on the final package” of sanctions and export controls, and suggested that those controls would target tech products.“We produce the most sophisticated technological inputs across a range of foundational technologies — A.I., quantum, biotech, hypersonic flight, robotics,” Mr. Singh said. “As we and our partners move in lock step to deny these critical technology inputs to Russia’s economy, Putin’s desire to diversify outside of oil and gas — which is two-thirds of his export revenue, half of his budget revenues — that will be denied.”“He’s spoken many times about a desire for an aerospace sector, a defense sector, an I.T. sector,” Mr. Singh said of Mr. Putin. “Without these critical technology inputs, there is no path to realizing those ambitions.”Kevin Wolf, a partner in international trade at Akin Gump who worked in export controls under the Obama administration, said the White House could tailor its use of export controls to target certain strategic sectors, for example companies in the aerospace or maritime industry, while bypassing products used by the Russian populace, like washing machines.“They’re making it clear they’re not trying to take action that harms ordinary Russians,” Mr. Wolf said.Andy Shoyer, co-lead of global arbitration, trade and advocacy for Sidley Austin, said the restrictions appeared likely to focus on semiconductors and semiconductor equipment. The novel export controls that the United States wielded against Huawei have a powerful reach when it comes to semiconductors, since even chips made abroad are mostly manufactured and tested using machinery based on American designs, he said.“It’s not just what’s physically exported from the U.S.,” Mr. Shoyer said. “It could encompass a substantial amount of production, because so much of the semiconductor industry relies on U.S. technology.”The global semiconductor industry, which has been roiled by shortages and supply chain disruptions throughout the pandemic, could face more disruptions given Ukraine’s role in the semiconductor supply chain.The Ukraine Crisis’s Effect on the Global EconomyCard 1 of 6A rising concern. More

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    Russia-Ukraine Crisis Troubles the Stock Market

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    Whether you call it a correction or a panic attack, a stock market that was already becoming shaky has been roiled by Russia’s hostilities toward Ukraine.The U.S. stock market has been stumbling since the beginning of the year. Now, Russia’s escalating conflict with Ukraine is adding considerably to the market’s problems.After President Vladimir V. Putin of Russia ordered troops to enter two separatist-controlled enclaves in Ukraine, the S&P 500, which often serves as a proxy for the U.S. stock market, also crossed a notable threshold.On Tuesday, the S&P 500 fell to 4,304.76, down 1.01 percent for the day. That wasn’t much of a loss, but it nonetheless represented a notable milestone. It brought the stock market down 10.3 percent from its most recent peak on Jan. 3.On Wednesday, the index dropped another 1.84 percent, bringing its losses from the record to 11.9 percent.In Wall Street jargon, that meant the S&P 500 is in a “correction,” because its losses since Jan. 3 exceeded 10 percent.That 10 percent definition is entirely arbitrary and the subject of many quibbles, but this much is clear: A correction is not a good thing.“It’s an early warning indicator that tells you the market isn’t heading in the direction you want it to be going in,” said Edward Yardeni, an independent Wall Street economist who has compiled detailed records on modern stock market history. “A 10 percent decline isn’t that bad in itself, necessarily, but if the market keeps heading down, the next thing you know, you’re down 20 percent and then by common agreement you’re in a bear market, and, maybe, worrying about a recession.”

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    Recent S&P 500 Corrections
    Note: Bear markets are highlighted in red. The low point of the correction from the peak on Jan. 3, 2022, has yet to be determined. Source: Yardeni ResearchBy The New York TimesWhat makes the market decline disconcerting is that an escalating geopolitical conflict in Eastern Europe is now being added to the stock market’s ample woes.Stocks have been falling for weeks, for a variety of reasons. Concerns about the prospect of rising interest rates and generally tighter monetary policy from the Federal Reserve are at the top of my personal list.The Fed is, perhaps belatedly, planning at its meeting on March 15-16 to start increasing its benchmark funds rate from its current near-zero level, and then to begin reducing its $8.9 trillion balance sheet. All that is intended to mitigate the inflation that is running at an annual rate of 7.5 percent, a 40-year high.In addition, the death, illness and inconvenience caused by the coronavirus pandemic have had myriad pernicious effects. The labor force in the United States is smaller than it would be otherwise, and the economy’s service sector hasn’t fully rebounded. The pandemic has also caused supply chain bottlenecks that have held back sales and production and increased the prices of important products as varied as automobiles and kitchen appliances.Many publicly traded companies are circumventing these problems and passing the associated costs on to consumers, but their ability to keep doing so, while generating the profits that fuel the stock market, is questionable.The Russia-Ukraine crisis threatens to make matters worse for the economy and the markets. Russia produces important commodities, like palladium, which is needed in the catalytic converters of gasoline-powered automobiles, and whose prices have contributed to the high inflation in the United States.The anticipation of interruptions in commodity supplies has increased prices in futures markets, particularly for oil and natural gas, all of which could go much higher if the Ukraine crisis intensifies and if Western sanctions begin to bite.For those who remember the 1970s and early 1980s, an era of soaring inflation and multiple recessions caused in part by a geopolitical shift and two oil shocks, the possibility of a 2020s parallel is deeply disturbing.So is the fact that Russia is a nuclear power engaging in aggressive action against an independent country that is supported by NATO. The possibility that the conflict could be the start of a new Cold War, or something even worse, can’t be totally dismissed.That said, for investors, it’s worth remembering that since the stock market hit bottom in March 2020, the S&P 500 rose 114.4 percent through Jan. 3. Compared with that stupendous increase, the market’s decline since then has been inconsequential.S&P 500Since the beginning of the coronavirus pandemic

    Source: RefinitivBy The New York TimesWhat’s more, although just about everyone who closely follows the stock market agrees that it has had a correction, there is no agreement on when it took place. Laszlo Birinyi, who began analyzing the market with Salomon Brothers back in 1976, says a correction happens whenever the market crosses the 10 percent border, whether it’s at the end of the trading day or in the middle of it.That’s why Mr. Birinyi, who heads his own independent stock market research firm, Birinyi Associates, in Westport, Conn., says a market correction occurred on Jan. 24, not on Tuesday. The market at one point on Jan. 24 dropped as far as 12 percent below its close on Jan. 3 before rebounding smartly. “The psychology of the market, the mood, shifted then,” Mr. Birinyi said. “People were panicky until then — and then they weren’t.”The Ukraine Crisis’s Effect on the Global EconomyCard 1 of 6A rising concern. More

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    U.S. and Allies Impose Sanctions on Russia as Biden Condemns ‘Invasion’ of Ukraine

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    President Biden warned President Vladimir V. Putin of Russia that more sanctions would follow if he did not withdraw his forces and engage in diplomatic efforts to resolve the crisis.WASHINGTON — The United States and its allies on Tuesday swiftly imposed economic sanctions on Russia for what President Biden denounced as the beginning of an “invasion of Ukraine,” unveiling a set of coordinated punishments as Western officials confirmed that Russian forces had begun crossing the Ukrainian border.Speaking from the White House, Mr. Biden condemned President Vladimir V. Putin of Russia and said the immediate consequences for his aggression against Ukraine included the loss of a key natural gas pipeline and cutting off global financing to two Russian banks and a handful of the country’s elites.“Who in the Lord’s name does Putin think gives him the right to declare new so-called countries on territory that belonged to his neighbors?” Mr. Biden said on Tuesday afternoon, joining a cascade of criticism from global leaders earlier in the day. “This is a flagrant violation of international law and demands a firm response from the international community.”Mr. Biden warned Mr. Putin that more sanctions would follow if the Russian leader did not withdraw his forces and engage in diplomatic efforts to resolve the crisis.But that prospect remained dim by the end of the day, as Secretary of State Antony J. Blinken canceled plans to meet with the Russian foreign minister on Thursday, saying that it does not “make sense” to hold talks while Russian forces are on the move.“To put it simply, Russia just announced that it is carving out a big chunk of Ukraine,” Mr. Biden said, adding, “He’s setting up a rationale to take more territory by force.”President Biden called Russia’s actions a “flagrant violation of international law” and unveiled tough sanctions aimed at punishing the country.Al Drago for The New York TimesThe global response began early on Tuesday, just hours after Mr. Putin recognized the self-declared separatist states in eastern Ukraine and Russian forces started rolling into their territory, according to NATO, European Union and White House officials. It was the first major deployment of Russian troops across the internationally recognized border since the current crisis began.At a news conference in Moscow, Mr. Putin said that he had not decided to send in troops “right at this moment.” But officials said the invasion started overnight, just hours before Mr. Putin’s Parliament formally granted him the authority to deploy the military abroad. Ukrainians near the territory controlled by Kremlin-backed separatists have already endured days of shelling, and as Ukrainian troops hunkered down in their trenches and civilians took shelter in basements, the country’s military said that one soldier had been killed so far and six wounded.Financial markets around the world wobbled on Tuesday in the wake of the Russian actions and the response from Western governments. In the United States, the news pushed stocks lower, leaving the S&P 500 in correction territory, more than 10 percent below its January peak. Oil prices, which had risen to nearly $100 a barrel in anticipation of a global disruption, settled at $96.84 a barrel, up 1.5 percent.Mr. Biden and his counterparts in Germany, England and other European nations described the package of global sanctions as severe. They include financial directives by the United States to deny Russia the ability to borrow money in Western markets and to block financial transactions by two banks and the families of three wealthy Russian elites.Chancellor Olaf Scholz of Germany put the Nord Stream 2 gas pipeline on hold. The $11 billion conduit from Russia to Germany — completed but not yet operational — is crucial to Moscow’s plans to increase energy sales to Europe. European Union foreign ministers and the British government approved sanctions against legislators in Moscow who voted to authorize the use of force, as well as Russian elites, companies and organizations.“It will hurt a lot,” said the E.U. foreign policy chief, Josep Borrell Fontelles.The governments of Japan, Taiwan and Singapore also issued a joint statement saying they would limit technology exports to Russia in an effort to pressure Mr. Putin with damaging restrictions on his ambitions to compete in high-tech industries.But the moves in Washington and other capitals around the world were limited in scope and fell short of the more sweeping economic warfare that some — including members of Congress and other supporters of Ukraine — have repeatedly demanded in recent weeks.Mr. Biden and his counterparts have said they must balance the need to take swift and severe action with preserving the possibility of even greater sanctions on Russia if Mr. Putin escalates the conflict by trying to seize more territory claimed by the separatists, or even the entire country — a war that could kill tens of thousands of people.“This is the beginning of a Russian invasion of Ukraine,” he said, adding that “we’ll continue to escalate sanctions if Russia escalates.”European leaders also vowed to get tougher if Mr. Putin’s forces continued to advance. Prime Minister Boris Johnson described British sanctions as just “the first tranche.”Mr. Biden’s use of the word “invasion” was significant. In the past, he had angered the Ukrainian leadership when he suggested that there might be lesser penalties for a “minor incursion.” Now that Mr. Putin has ordered forces into eastern Ukraine, Mr. Biden, in his choice of words, is making clear that there is nothing minor about the operation.Russian self-propelled howitzers being loaded onto a train car on Tuesday near Taganrog, Russia.The New York TimesBut that still leaves open the question of how to calibrate the sanctions — because so far there have been no mass casualties. Jonathan Finer, the president’s deputy national security adviser, said early Tuesday that the administration could hold back some of its promised punishments in the hopes of deterring further, far more violent aggression by Mr. Putin aimed at taking the rest of the country.“We’ve always envisioned waves of sanctions that would unfold over time in response to steps Russia actually takes, not just statements that they make,” Mr. Finer said on CNN. “We’ve always said we’re going to watch the situation on the ground and have a swift and severe response.”Crucially, it remains unclear how far Mr. Putin — who has argued that Ukraine itself is a phony country, wrongly carved away from Russia — is prepared to go. On Tuesday, he said ominously that he recognized the so-called Donetsk and Luhansk republics’ sovereignty over not only the land they control, but also the much larger portion of Ukraine that they lay claim to, home to 2.5 million people.Maps: Russia and Ukraine Edge Closer to WarRussia has built an enormous military force along Ukraine’s border that appears prepared to attack from the north, east and south.At a hastily called news conference on Tuesday, Mr. Putin demanded that Ukraine vow never to join NATO, give up the advanced weapons the West has delivered to it, recognize Russia’s annexation of Crimea and negotiate directly with the Luhansk and Donetsk separatists, who are seen in Kyiv and Western capitals as illegitimate Kremlin proxies.“The most important point is a known degree of demilitarization of Ukraine today,” Mr. Putin said. “This is the only objectively controllable factor that can be observed and reacted to.”Understand How the Ukraine Crisis DevelopedCard 1 of 7How it all began. 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    Will Biden’s Sanctions Halt a Russian Invasion of Ukraine?

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    President Vladimir V. Putin has learned from earlier U.S.-led sanctions, and his allies could benefit from a more isolated Russia.WASHINGTON — When the Obama administration imposed sanctions on Russia for invading Ukraine in 2014, American officials were hopeful they would deter President Vladimir V. Putin from further aggression.Some of the officials argue today that the sanctions prevented Mr. Putin from ordering Russian forces beyond where they had halted on the Crimean Peninsula and in the eastern Donbas region. But Mr. Putin held on to Crimea. And on Monday, he ordered more troops into an insurgent-controlled area of eastern Ukraine where thousands of Russian soldiers have been operating and said the Kremlin was recognizing two enclaves as independent states.Now, President Biden, who as vice president helped oversee Ukraine policy in 2014, has to weigh what sanctions might compel Mr. Putin to halt his new offensive, which the White House has judged to be an “invasion.” The White House is taking a step-by-step approach, trying to calibrate each tranche of measures to Mr. Putin’s actions.“I’m going to begin to impose sanctions in response, far beyond the steps we and our allies and partners implemented in 2014,” Mr. Biden said on Tuesday in announcing a new set of sanctions. “And if Russia goes further with this invasion, we stand prepared to go further.”While American officials have studied the effects of sanctions imposed since 2014 and sharpened techniques, Mr. Putin has had years to make his country’s $1.5 trillion economy more insular so that parts of Russia would be shielded from tough penalties. Speaking to reporters on Friday, he boasted that his country had grown more self-sufficient in the face of “illegitimate” Western sanctions, according to Russia’s Tass news service. He added that in the future, it would be “important for us to raise the level of our economic sovereignty.”And perhaps most notably, Mr. Putin and his closest aides and partners in Moscow might not suffer much themselves from sanctions, analysts say.Mr. Putin’s decision on Monday to press ahead with the troop movement suggests that he has concluded that the costs of new sanctions are tolerable, despite U.S. talk of “massive consequences” for his country. Several of his top aides made that point in choreographed speeches to him in a meeting of his Security Council on Monday in Moscow.If Russian officials are firm in that mind-set, the Biden administration might find it has to impose the absolute harshest sanctions — ones that would inflict suffering on many ordinary citizens — or look for a noneconomic option, such as giving greater military aid to an insurgency in Ukraine. Mr. Biden has said he will not send American troops to defend Ukraine.Some of the hard-line nationalist men around Mr. Putin were already on a Treasury Department sanctions list and accept that they and their families will no longer have substantial ties to the United States or Europe for the rest of their lives, said Alexander Gabuev, the chair of the Russia in the Asia-Pacific Program at the Carnegie Moscow Center.“They are the powerful everybodies in today’s Russia,” he said. “There is a lot of posh richness. They’re totally secluded. They’re the kings, and that can be secured in Russia only.”Furthermore, because of their roles in state-owned enterprises and their business ties, they are “the very guys who are directly benefiting from the economy becoming more insulated, more detached from the outside world,” he added.They have also adopted a siege mentality rooted in an ideological belief about the United States and its sanctions policies that Mr. Putin regularly pushes. “He says, ‘It’s not because of actions I take, but it’s because we’re rising as a power, and the Americans want to punish us for standing up to hegemonism,’” Mr. Gabuev said. “I think that’s genuine. The bulk of my contacts in the government believe that.”The sanctions announced by the United States on Tuesday include penalties against three sons of senior officials close to Mr. Putin and two state-owned banks, as well as further restrictions on Russia’s ability to raise revenue by issuing sovereign debt. The costs are not expected to be felt widely in Russia — the two banks are policy institutions and do not have retail operations — but American officials could eventually announce more painful steps.That announcement followed an executive order issued by Mr. Biden on Monday night that prohibits business dealings between Americans and entities in the Russia-backed eastern enclaves in Ukraine. The Biden administration would also have the authority to impose sanctions on anyone operating in those areas, a U.S. official said.Britain announced Tuesday that it was freezing the assets of five Russian banks and imposing sanctions on three Russian billionaires and certain members of Parliament. And Germany said it was halting certification of the Nord Stream 2 natural gas pipeline that would connect to Russia.A severe economic disruption could test Mr. Putin’s control of his country. But many analysts are skeptical that the United States and its European allies will follow through with the toughest options that they have considered.Sputnik, via Associated PressOfficials from the White House, State Department and Treasury Department have spent weeks coordinating a response with European leaders and major financial institutions and say they are able to act almost immediately as Russia escalates its actions.Some experts say that if the Biden administration follows through on the most severe options that officials have suggested are possible — most notably severing the country’s top banks, including Sberbank and VTB, from transactions with non-Russian entities — Russia could suffer a financial panic that triggers a stock market crash and rapid inflation. The effects would most likely strike not only billionaire oligarchs but also middle-class and lower-income families. Russian enterprises would also be unable to receive payment for energy exports.Besides isolating Russian state-owned banks, the escalatory sanctions that U.S. officials have prepared would also cut off the ability to purchase critical technologies from American companies.If the United States imposes the harshest penalties, “there will be unexpected and unpredictable consequences for global markets,” said Maria Snegovaya, a visiting scholar at George Washington University who co-wrote an Atlantic Council paper on U.S. sanctions on Russia.Edward Fishman, a top State Department sanctions official in the Obama administration, called Mr. Biden’s action on Tuesday a modest first step intended as “a shot across the bow.”Mr. Fishman said the administration’s move against one of the two targeted banks — VEB, the country’s main development bank — was the first time the United States had fully cut off a state-owned Russian financial institution. “I interpret that as a warning that the Biden administration is prepared to cut off other major Russian banks from the U.S. financial system,” Mr. Fishman said.“Biden is giving Putin an opportunity to step away from the brink,” he added. “But he’s also signaling that, if Putin unleashes a full-scale war, the economic costs will be immense.”Sberbank is a possible target of U.S. sanctions. Some experts say that if the Biden administration imposes particularly harsh measures, Russia could suffer a financial panic.Evgenia Novozhenina/ReutersA severe economic disruption could test Mr. Putin’s control of his country. But many analysts are skeptical that the United States and its European allies will follow through with the toughest options that they have considered, as they may be discouraged by fears over collateral damage to their own economies.And no Western officials have even proposed choking the lifeblood of Russia’s economy by cutting off its lucrative energy exports. Experts say that a move against Russian energy revenues would have the biggest impact, but that it would also lead to a precarious political situation for Mr. Biden and other world leaders as oil and gas prices rise in a period of high global inflation.The Russian government has spent years trying to reconfigure its budget and finances so that it can withstand further sanctions, efforts that have been aided by high market prices for oil and gas. It has relatively low debt and relies less on loans from foreign entities than it did before 2014. Most importantly, the central bank has accumulated foreign currency reserves of $631 billion, the fourth-largest such reserve in the world.Some important Russian state-owned enterprises and private companies have actually benefited from U.S. sanctions. Kremlin policies aimed at replacing Western imports with Russian and non-Western products wind up raising the profits of those businesses. And some of Mr. Putin’s allies and their families have done well under the initiatives. One example is Dmitry Patrushev, the minister of agriculture, whose family has become wealthier from new agriculture industry policies, Mr. Gabuev said.President Xi Jinping of China, who has been strengthening his nation’s ties with Russia, could help Mr. Putin get around some of the sanctions or bolster Russia’s economy with greater energy purchases. When the two leaders met in Beijing at the start of the Winter Olympics, their governments announced a 30-year contract in which China would purchase gas through a new pipeline running across Siberia. Chinese companies might also be able to fill some of the supply chain gaps created by a stoppage in certain U.S. technology exports to Russia, though those companies are unable to replicate more advanced American products.Chinese leaders would probably be careful about having its large state-owned banks continue to do business overtly with any Russian banks that are under U.S. sanctions, but China has ways to keep some transactions hidden.“They’ve developed a lot of e-payment and digital workarounds,” said Daniel Russel, a former assistant secretary of state for East Asian and Pacific affairs and an executive at the Asia Society. “There are all kinds of fairly sophisticated barter systems they’ve been employing. Thirdly, they can hide behind a lot of black market stuff.” More

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    Russia’s Moves in Ukraine Unsettle Energy Companies and Prices

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    Oil and gas prices are up, and Western energy giants with operations and investments in Russia could find it harder to keep doing business there.Russia’s recognition of two breakaway regions in eastern Ukraine could threaten important investments of Western oil giants and further drive up global energy prices in the next few weeks.Since the closing days of the Cold War, Russia’s energy-based economy has become entwined with Europe’s. European energy companies like BP, TotalEnergies and Shell have major operations and investments in Russia. Though expansion of those holdings was largely halted after Russia’s 2014 annexation of Crimea, they remain important profit centers and could now be at risk.Seeking to isolate President Vladimir V. Putin of Russia, President Biden and the European Union imposed new sanctions on the Russian government and the country’s political and business elite on Tuesday. The measures do not directly target the energy industry. That’s why oil and gas prices settled only modestly higher on Tuesday afternoon in New York.But analysts said the energy industry could still be hurt if the crisis dragged on, particularly if Mr. Putin decided to send troops into the rest of Ukraine or sought to take control of the capital, Kyiv. Such aggressive action would most likely force Mr. Biden and other Western leaders to ratchet up their response.European leaders are already taking aim at some Russian energy exports. Chancellor Olaf Scholz said on Tuesday that Germany would halt certification of the Nord Stream 2 pipeline, which is supposed to deliver Russian gas. The decision will not have an immediate impact on European energy supplies because the pipeline is not yet operating. But Russian gas shipments through Ukraine could be halted, especially if Mr. Putin’s troops push farther into Ukraine or if he cuts off gas to Europe in retaliation for Western sanctions.Russia supplies one out of every 10 barrels of oil used around the world. After Western officials said Russian troops had entered eastern Ukrainian regions held by separatists, oil prices quickly jumped early Tuesday to nearly $100 a barrel, their highest level in more than seven years, before moderating.Energy experts say oil prices could easily rise another $20 a barrel if Mr. Putin seeks to occupy more or all of Ukraine. Such an outcome would also cause huge problems for Western oil companies that do business in Russia.“In that environment, the legal and reputational risk faced by Western energy companies operating in Russia will rise sharply,” said Robert McNally, who was an energy adviser to President George W. Bush and is now president of the Rapidan Energy Group, a consulting firm. “For oil markets, this means slower supply growth and even tighter global balances and higher prices in the coming years.”TotalEnergies, which is based near Paris, owns nearly 20 percent of Novatek, Russia’s largest liquefied natural gas company, and Shell has a strategic alliance with Gazprom, Russia’s natural gas monopoly.The Salym oil field, which Shell operates jointly with Gazprom in western Siberia.Alexander Zemlianichenko Jr./BloombergThe Western oil company most involved in Russia is BP, which owns nearly 20 percent of Rosneft, the state-controlled energy company managed by Igor Sechin, who is widely considered a close Putin ally and adviser. BP’s chief executive, Bernard Looney, and its former chief executive Bob Dudley sit on Rosneft’s board with Mr. Sechin and Alexander Novak, Russia’s deputy prime minister.Rosneft contributed $2.4 billion in profits and $600 million in dividends to BP in 2021, and has a secondary listing on the London Stock Exchange. About a third of BP’s oil production, or 1.1 million barrels a day, came from Russia last year.BP executives have so far expressed calm. “We have been there over 30 years and our job is to focus on our business, and that is what we are doing,” Mr. Looney said in a recent conference call with analysts. “If something comes down the road, then obviously we will deal with it as it comes.”Most oil companies have been reporting bumper profits because of rising oil and gas prices. European firms are using some of their profits to invest more in wind, solar, hydrogen and other forms of cleaner energy. But the current crisis could be a major distraction, if not worse.Doing business in Russia has always been complicated, especially as Mr. Putin reasserted state control over energy, squeezing private investors.Shell was forced to give up control of its premier Russian liquefied natural gas project on Sakhalin Island, in eastern Russia, to Gazprom in 2006. Shell retains a modest stake in the facility, and it appears to want to keep the door open to more business in Russia. Along with four other European companies, it helped finance the estimated $11 billion Nord Stream 2 pipeline to Germany.TotalEnergies has continued investing in a $27 billion natural gas complex in the Yamal Peninsula, in the Arctic, that Novatek controls. The project sidestepped earlier Western sanctions by obtaining financing from Chinese banks. It began producing gas for European and Asian customers in 2017.Share prices of BP and Total closed on Tuesday down more than 2 percent, and Shell was down about 1 percent.Prospects for Western oil companies seeking to do business in Russia were once far brighter. Exxon Mobil, Italy’s ENI and other foreign oil companies teamed up with Rosneft in 2012 and 2013 to explore Arctic oil and gas fields.BP owns nearly 20 percent of Rosneft, which operates this refinery in Novokuibyshevsk, Russia.Andrey Rudakov/BloombergBut U.S. and European Union sanctions imposed after Russia’s seizure of Crimea forced many Western companies to stop expanding in Russia in part by limiting access to financing and technology for deepwater exploration.Exxon formally abandoned exploration ventures with Rosneft in 2018, and took a $200 million after-tax loss.Understand How the Ukraine Crisis DevelopedCard 1 of 7How it all began. More

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    What’s at Stake for the Global Economy as Conflict Looms in Ukraine

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    Countries that depend on the region’s rich supply of energy, wheat, nickel and other staples could feel the pain of price spikes.After getting battered by the pandemic, supply chain chokeholds and leaps in prices, the global economy is poised to be sent on yet another unpredictable course by an armed clash on Europe’s border.Even before the Kremlin ordered Russian troops into separatist territories of Ukraine on Monday, the tension had taken a toll. The promise of punishing sanctions in return by President Biden and the potential for Russian retaliation had already pushed down stock returns and driven up gas prices.An outright attack by Russian troops could cause dizzying spikes in energy and food prices, fuel inflation fears and spook investors, a combination that threatens investment and growth in economies around the world.However harsh the effects, the immediate impact will be nowhere near as devastating as the sudden economic shutdowns first caused by the coronavirus in 2020. Russia is a transcontinental behemoth with 146 million people and a huge nuclear arsenal, as well as a key supplier of the oil, gas and raw materials that keep the world’s factories running. But unlike China, which is a manufacturing powerhouse and intimately woven into intricate supply chains, Russia is a minor player in the global economy.Italy, with half the people and fewer natural resources, has an economy that is twice the size. Poland exports more goods to the European Union than Russia.“Russia is incredibly unimportant in the global economy except for oil and gas,” said Jason Furman, a Harvard economist who was an adviser to President Barack Obama. “It’s basically a big gas station.”An underground gas storage facility in Kasimov, east of Moscow. Russia supplies nearly 40 percent of Europe’s natural gas.Andrey Rudakov/BloombergOf course, a closed gas station can be crippling for those who depend on it. The result is that any economic damage will be unevenly spread, intense in some countries and industries and unnoticed in others.Europe gets nearly 40 percent of its natural gas and 25 percent of its oil from Russia, and is likely to be walloped with spikes in heating and gas bills, which are already soaring. Natural gas reserves are at less than a third of capacity, with weeks of cold weather ahead, and European leaders have already accused Russia’s president, Vladimir V. Putin, of reducing supplies to gain a political edge.And then there are food prices, which have climbed to their highest level in more than a decade largely because of the pandemic’s supply chain mess, according to a recent United Nations report. Russia is the world’s largest supplier of wheat, and together with Ukraine, accounts for nearly a quarter of total global exports. For some countries, the dependence is much greater. That flow of grain makes up more than 70 percent of Egypt and Turkey’s total wheat imports.This will put further strain on Turkey, which is already in the middle of an economic crisis and struggling with inflation that is running close to 50 percent, with skyrocketing food, fuel and electricity prices.And as usual, the burden falls heaviest on the most vulnerable. “Poorer people spend a higher share of incomes on food and heating,” said Ian Goldin, a professor of globalization and development at Oxford University.Ukraine, long known as the “breadbasket of Europe,” actually sends more than 40 percent of its wheat and corn exports to the Middle East or Africa, where there are worries that further food shortages and price increases could stoke social unrest.Lebanon, for example, which is experiencing one of the most devastating economic crises in more than a century, gets more than half of its wheat from Ukraine, which is also the world’s largest exporter of seed oils like sunflower and rapeseed.On Monday, the White House responded to Mr. Putin’s decision to recognize the independence of two Russian-backed territories in the country’s east by saying it would begin imposing limited sanctions on the so-called Donetsk and Luhansk People’s Republics. Jen Psaki, the White House press secretary, said Mr. Biden would soon issue an executive order prohibiting investment, trade and financing with people in those regions.Analysts watching the unfolding conflict have mapped out a range of scenarios from mild to severe. The fallout on working-class families and Wall Street traders depends on how an invasion plays out: whether Russian troops stay near the border or attack the Ukrainian capital, Kyiv; whether the fighting lasts for days or months; what kind of Western sanctions are imposed; and whether Mr. Putin responds by withholding critical gas supplies from Europe or launching insidious cyberattacks.“Think about it rolling out in stages,” said Julia Friedlander, director of the economic statecraft initiative at the Atlantic Council. “This is likely to play out as a slow motion drama.”As became clear from the pandemic, minor interruptions in one region can generate major disruptions far away. Isolated shortages and price surges— whether of gas, wheat, aluminum or nickel — can snowball in a world still struggling to recover from the pandemic.“You have to look at the backdrop against which this is coming,” said Gregory Daco, chief economist for EY-Parthenon. “There is high inflation, strained supply chains and uncertainty about what central banks are going to do and how insistent price rises are.”Ukraine’s port of Mykolaiv. The Middle East and Africa are especially reliant on Ukraine’s exports of wheat and corn.  Brendan Hoffman for The New York TimesThe additional stresses may be relatively small in isolation, but they are piling on economies that are still recovering from the economic body blows inflicted by the pandemic.What’s also clear, Mr. Daco added, is that “political uncertainty and volatility weigh on economic activity.”That means an invasion could have a dual effect — slowing economic activity and raising prices.In the United States, the Federal Reserve is already confronting the highest inflation in 40 years, at 7.5 percent in January, and is expected to start raising interest rates next month. Higher energy prices set off by a conflict in Europe may be transitory but they could feed worries about a wage-price spiral.“We could see a new burst of inflation,” said Christopher Miller, a visiting fellow at the American Enterprise Institute and an assistant professor at Tufts University.Also fueling inflation fears are possible shortages of essential metals like palladium, aluminum and nickel, creating another disruption to global supply chains already suffering from the pandemic, trucker blockades in Canada and shortages of semiconductors.The price of palladium, for example, used in automotive exhaust systems, mobile phones and even dental fillings, has soared in recent weeks because of fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, used to make steel and electric car batteries, has also been jumping.It’s too early to gauge the precise impact of an armed conflict, said Lars Stenqvist, the chief technology officer of Volvo, the Swedish truck maker. But he added, “It is a very, very serious thing.”“We have a number of scenarios on the table and we are following the developments of the situation day by day,” Mr. Stenqvist said Monday.The West has taken steps to blunt the impact on Europe if Mr. Putin decides to retaliate. The United States has ramped up delivery of liquefied natural gas and asked other suppliers like Qatar to do the same.A front line position in Luhansk Oblast, in eastern Ukraine, a scene of mortar attacks. “This is likely to play out as a slow motion drama,” said one analyst.Tyler Hicks/The New York TimesThe demand for oil might add momentum to negotiations to revive a deal to curb Iran’s nuclear program. Iran, which is estimated to have as many as 80 million barrels of oil in storage, has been locked out of much of the world’s markets since 2018, when President Donald J. Trump withdrew from the nuclear accord and reimposed sanctions.Some of the sanctions against Russia that the Biden administration is considering, such as cutting off access to the system of international payments known as SWIFT or blocking companies from selling anything to Russia that contains American-made components, would hurt anyone who does business with Russia. But across the board, the United States is much less vulnerable than the European Union, which is Russia’s largest trading partner.Americans, as Mr. Biden has already warned, are likely to see higher gasoline prices. But because the United States is itself a large producer of natural gas, those price increases are not nearly as steep and as broad as elsewhere. And Europe has many more links to Russia and engages in more financial transactions — including paying for the Russian gas.Oil companies like Shell and Total have joint ventures in Russia, while BP boasts that it “is one of the biggest foreign investors in Europe,” with ties to the Russian oil company Rosneft. Airbus, the European aviation giant, gets titanium from Russia. And European banks, particularly those in Germany, France and Italy, have lent billions of dollars to Russian borrowers.“Severe sanctions that hurt Russia painfully and comprehensively have potential to do huge damage to European customers,” said Adam Tooze, director of the European Institute at Columbia University.Depending on what happens, the most significant effects on the global economy may manifest themselves only over the long run.One result would be to push Russia to have closer economic ties to China. The two nations recently negotiated a 30-year contract for Russia to supply gas to China through a new pipeline.“Russia is likely to pivot all energy and commodity exports to China,” said Carl Weinberg, chief economist at High Frequency Economics.The crisis is also contributing to a reassessment of the global economy’s structure and concerns about self-sufficiency. The pandemic has already highlighted the downsides of far-flung supply chains that rely on lean production.Now Europe’s dependence on Russian gas is spurring discussions about expanding energy sources, which could further sideline Russia’s presence in the global economy.“In the longer term, it’s going to push Europe to diversify,” said Jeffrey Schott, a senior fellow working on international trade policy at the Peterson Institute for International Economics. As for Russia, the real cost “would be corrosive over time and really making it much more difficult to do business with Russian entities and deterring investment.” More

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

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

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

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    What a Disconnect From Swift Would Mean for Russia

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    A Belgian financial messaging service is once again at the center of an international sanctions fight.WASHINGTON — President Biden has pledged that if Russia invades Ukraine it will face “severe economic consequences,” with the United States likely to unleash a blistering package of sanctions that would effectively cut the Russian economy off from much of the global financial system.The United States has become increasingly reliant on sanctions in the last decade as a way to address diplomatic problems, but directing such tools at an economy the size of Russia’s would come with little precedent. The Biden administration has said that all options remain on the table, suggesting that it could impose an array of sanctions on Russian financial institutions and new restrictions on the exports of American products. But the biggest question among sanctions experts when it comes to inflicting economic pain on Russia is the fate of a critical financial conduit: Swift.In sanctions circles, a move by the United States and its European allies to cut Russia off from Swift has been characterized as a nuclear option. However, doing so is not as simple as it sounds and could yield unintended consequences because of Russia’s size and position in the world economy.“The Russian economy is a different beast,” said Adam M. Smith, who served as a senior sanctions official in the Obama administration’s Treasury Department. “It is twice the size of any economy the U.S. has ever sanctioned.”A Treasury Department spokeswoman said the Biden administration was assessing potential “spillovers” from any sanctions it imposes on Russia and exploring ways to reduce any unintended negative effects. Last week, Biden administration officials met with representatives from U.S. banks to discuss the risks and potential market impacts of sanctions on Russia, including the possible ramifications of cutting off Swift access for entities that had been hit with sanctions.Understand Russia’s Relationship With the WestThe tension between the regions is growing and Russian President Vladimir Putin is increasingly willing to take geopolitical risks and assert his demands.Competing for Influence: For months, the threat of confrontation has been growing in a stretch of Europe from the Baltic Sea to the Black Sea. Threat of Invasion: As the Russian military builds its presence near Ukraine, Western nations are seeking to avert a worsening of the situation.Energy Politics: Europe is a huge customer of Russia’s fossil fuels. The rising tensions in Ukraine are driving fears of a midwinter cutoff.Migrant Crisis: As people gathered on the eastern border of the European Union, Russia’s uneasy alliance with Belarus triggered additional friction.Militarizing Society: With a “youth army” and initiatives promoting patriotism, the Russian government is pushing the idea that a fight might be coming.What is Swift?Officially the Society for Worldwide Interbank Financial Telecommunications, Swift is a Belgian messaging service that connects more than 11,000 financial institutions as they transfer money around the world. It does not actually hold or transfer funds, but allows banks and other financial firms to alert one another of transactions that are about to take place.Swift is a global cooperative of financial institutions that is based in Belgium. It started in 1973 when 239 banks from 15 countries came together to figure out how to best handle cross-border payments.Despite its best efforts to be an apolitical cog in the international financial system, Swift has at times found itself embroiled in diplomatic disputes.Can Russia be booted from Swift?There have been continuing discussions between the United States and its allies in Europe over whether to block Russia’s access to Swift. However, the Biden administration could take that step unilaterally.If the United States decided to levy sanctions on Russian banks, it could then say that Swift was in violation of those sanctions by continuing to let those banks use its system. The Defending Ukraine Sovereignty Act of 2022, which Senate Democrats unveiled this month, would authorize sanctions on providers of specialized financial messaging services, such as Swift, but the Biden administration could also impose such sanctions without the approval of Congress.Cutting a country’s access to Swift is not without precedent.In 2012, Swift expelled as many as 30 Iranian financial institutions, including its central bank, in order to comply with European Union sanctions that were enacted in response to Iran’s disputed nuclear energy program. Services were reconnected after the 2015 nuclear deal, and then cut again in 2018 after the Trump administration withdrew from the pact and resumed sanctions.How would Russia respond to being removed?Russia has faced such threats before. In 2014, when Russia invaded and annexed Crimea, there were calls in Europe to exclude Russia from Swift. Dmitri A. Medvedev, then Russia’s prime minister, said at the time that such a move would be a “declaration of war.” According to the Carnegie Moscow Center, Russian forecasts at the time projected that being cut off from Swift would shrink the country’s gross domestic product by 5 percent.Last week, Nikolay Zhuravlev, the vice speaker of Russia’s Federation Council, told the government-run news agency TASS that removing Russia from Swift would also have economic consequences for European countries, which he said would not be able to receive imports of Russian oil, gas and metals as a result of Russia’s being unable to receive foreign currency.Mr. Smith, the former Treasury official, said the United States and Europe might look for ways to exempt certain Russian sectors, such as energy, from sanctions. However, moves to cut off Russia’s economy could have unintended consequences, such as Moscow retaliating, that could rattle global markets.“They are not without their own cards to play,” he said.A switch to Swift alternativesThe threat of being cut off from Swift might not be as dire as it was in the past.Several countries including Russia have developed their own financial messaging systems that, while less sophisticated than Swift, could allow Russian financial firms to maintain communications with the world. Russia began developing its system in 2014 amid threats of escalating sanctions from the United States.Mr. Medvedev, who is now the deputy chairman of the Security Council of Russia, said last week that the new system was functional and that financial flows would be able to continue within Russia if the country was cut off from Swift. He acknowledged that international financial transfers could be complicated if that happened.“Yes, they will be more difficult, it is obvious, but it won’t be a catastrophe,” Mr. Medvedev said.Some experts on Russia sanctions agree that Western officials are overplaying the potential effects of disconnecting Russia from Swift.“Cutting Russia off from Swift — it won’t be as painful for Russia as Western officials envision,” said Maria Snegovaya, a visiting scholar at George Washington University and a co-author of an Atlantic Council report on U.S. sanctions on Russia.Edward Wong More