WASHINGTON — The Biden administration’s push to form an international buyers’ cartel to cap the price of Russian oil is facing resistance amid private sector concerns that it cannot be reliably enforced, posing a challenge for the U.S.-led effort to drain President Vladimir V. Putin’s war chest and stabilize global energy prices.
The price cap has been a top priority of Treasury Secretary Janet L. Yellen, who has been trying to head off another spike in global oil costs at the end of the year. The Biden administration fears that the combination of a European Union embargo on Russian oil imports and a ban on the insurance and financing of Russian oil shipments will send prices soaring by taking millions of barrels of that oil off the market.
But the untested concept has drawn skepticism from energy experts and, in particular, the maritime insurance sector, which facilitates global oil shipments and is key to making the proposal work. Under the plan, it would be legal for them to grant insurance for oil cargo only if it was being sold at or below a certain price.
Mike Salthouse, global claims director at The North of England P&I Association Limited, a leading global marine insurer. “If you have sophisticated state actors wanting to deceive people, it’s very easy to do.”
He added: “We’ve said it won’t work. We’ve explained to everybody why.”
That has not deterred Ms. Yellen and her top aides, who have been crisscrossing the globe to make their case with international counterparts, banks and insurers that an oil price cap can — and must — work at a moment of rapid inflation and the risk of recession.
“At a time of global anxiety over high prices, a price cap on Russian oil is one of the most powerful tools we have to address inflation by preventing future spikes in energy costs,” Ms. Yellen said in July.
The Biden administration is trying to mitigate fallout from sanctions adopted by the European Union in June, which would ban imports of Russian oil and the financing and insuring of Russian oil exports by year’s end. Britain was expected to enact a similar ban but has not yet done so.
not solve the world’s oil supply problems. European officials, who have been skeptical, continue to say they are analyzing its viability.
restricted natural gas flows to parts of Europe in retaliation for sanctions, would curb oil exports because of their importance to its economy.
senior fellow at the Atlantic Council who works in the financial services industry, said of Russia’s cooperation with a price cap. “If that were the case, he wouldn’t have invaded Ukraine in the first place.”
But proponents believe that if the European Union bans insurance transactions, an oil price cap may be the best chance to mitigate the economic fallout.
John E. Smith, former director of the foreign assets control unit, said the key was ensuring that financial services firms and maritime insurers were not responsible for vetting every oil transaction, as well as providing guidance on complying with the sanctions.
“The question is will enough jurisdictions agree on the details to move this forward,” said Mr. Smith, who is now co-head of Morrison & Foerster’s national security practice. “If they do, it could be a win for everyone but Russia.”
Matina Stevis-Gridneff contributed reporting from Brussels.
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In a thickly forested park bordered by apartment blocks and a playground, a dozen workers were busy on a recent day with chain saws and axes, felling trees, cutting logs and chopping them into firewood to be stashed in concealed sheds around Lviv, the largest city in western Ukraine.
Ironworkers at a nearby forge are working overtime to produce wood-burning stoves to be stored in strategic locations. In municipal depots, room is being made to stockpile reserves of coal.
The activity in Lviv is being played out in towns and cities across Ukraine, part of a nationwide effort to amass emergency arsenals of backup fuel and critical provisions as Russia tightens its chokehold on energy supplies across Europe.
curtailed gas supplies to Europe last week, leading the European Union to announce that it will reduce imports of Russian gas so as not to be held hostage. Russia turned off the gas taps to Latvia on Saturday, after the government there announced additional military assistance for Ukraine, the latest in a string of European countries to do so.
Ukraine buys its natural gas from European neighbors, so the restriction of deliveries to Europe threatens its access to energy, too.
ordered to evacuate this past weekend after months of relentless Russian bombardment destroyed the infrastructure needed to deliver heat and electricity.
Our Coverage of the Russia-Ukraine War
“We understand that the Russians may continue targeting critical energy infrastructure before and during the winter,” said Oleksiy Chernyshov, Ukraine’s minister for communities and territories development, in an interview.
“They’ve demolished central heating stations in big cities, and physical devastation is still happening nationwide,” he said. “We are working to repair damage, but it doesn’t mean we won’t have more.”
Far from Ukraine’s embattled southeastern front, the campaign is being waged in forests and in steel forges, at gas storage sites and electrical stations, and even in basement boiler rooms, as the government mobilizes regions to activate a blueprint for amassing fuel and shelter.
disconnect Ukraine’s energy grid from Russia and Belarus and link it directly to the European Union’s. Last month, Ukraine began exporting small amounts of electricity to Romania, with hopes of eventually supplying European companies that have been hit by Russian natural gas cuts, a potential source of valuable income.
But Ukrainian officials say the ability to supply electricity at home, especially over the coming winter, when temperatures can fall far below freezing, is increasingly threatened as Russia intensifies a campaign of targeting the infrastructure that delivers energy.
Russian shelling has hit thermal power plants around the country and over 200 gas-fired boiler plants used for centralized heating. Around 5,000 kilometers of gas pipelines have been damaged, along with 3,800 gas distribution centers, according to an analysis by the Woodrow Wilson International Center’s Kennan Institute, a think tank focused on Russia.
Gas is especially critical for Ukraine because it is used to warm thousands of high-rise apartment complexes, schools, post offices and municipal buildings that rely on centralized heating systems.
largest gas reserves in Europe and has 11 billion cubic meters in storage. Andrii Zakrevskyi, head of the Ukrainian oil and gas association, said Monday that was enough to meet Ukraine’s needs before the war — but the level is roughly half what the government would like it to be.
racing to secure new energy sources, the pain circles back to Ukraine, which imports gas from Europe after halting direct imports from Russia after the 2014 annexation of Crimea. Russia’s squeeze has pushed European gas futures prices to record levels, making imports more expensive at a time when the government in Kyiv is facing a budget crisis.
All of which has gotten the country mobilized in a hurry.
Swiatoslaw and Zoriana Bielinski recently stocked the cellar of their modest Lviv home with wood. The couple has purchased scores of batteries and several battery-operated lamps in case the lights go out, and they were preparing to buy gas bottles for cooking.
“We have to start thinking about this,” said Alicja Bielinska, Mr. Bielinski’s sister, who had helped the couple stock up. “Ultimately, we can survive without light and gas, but we won’t be able to survive if the invaders take over.”
Officials responsible for city planning have stockpiled on a much grander scale, collecting thousands of tons of wood and a large stash of coal in the last week alone. Mr. Sadovyi, Lviv’s mayor, said more supplies were on the way and has ordered thermostats to be lowered to 15 degrees Celsius (59 degrees Fahrenheit) when winter sets in.
On a recent day, Mr. Sadovyi buzzed around the city hall courtyard, greeting locals who had gathered for now-regular demonstrations on how to prepare for heat and electricity cuts — or worse. Two emergency workers showed residents how to put on a chemical suit in case of an attack: gas mask firmly in place, the suit sealed tight over the head.
Forges have shifted some production to put a priority on making tens of thousands wood-burning stoves, some emblazoned with the Ukrainian coat of arms. Town halls in over 200 cities are building stockpiles, along with tents that can house up to 50 people apiece in the event that multifamily apartment buildings are left without gas needed to heat them.
The tents can be moved quickly to sites without electricity or heat, providing emergency shelter and stoves for boiling water and cooking, said Mr. Chernyshov, the development minister.
“We hope we won’t have to use them,” said Iryna Dzhuryk, an administrative director in Lviv. “But this is an absolutely unusual situation. We are shocked by what we’re facing and worried about making sure we have enough to keep people warm.”
Nearby, sheds recently built to stock firewood have been camouflaged by locals. Additional wood is expected to arrive in the coming weeks, hewn from groves of trees inside the city and from the vast forests of western Ukraine.
One hour’s drive north of Lviv, in a dense wood streaked with yellow sunlight, forestry service workers labored to generate enough firewood to supply a beleaguered nation. On a recent weekday, they cut into a grove of weathered oak trees and trucked them to a sawmill, where a lumberyard half the size of a football field was stacked a meter high with freshly hewn logs.
Firewood sales have doubled from a year ago, and prices have nearly tripled as the country stocks up, said Yuriy Hromyak, vice director of the Lviv Regional Department of Forestry.
Even the forest isn’t sheltered from Russian attacks, he added. Ukrainian forces recently shot down a rocket fired from Belarus on a nearby oil storage facility. The tanks — which were empty — weren’t damaged, but the blast blew out all the windows in a wood storage warehouse and in parts of the sawmill.
“The Russians will do anything to try to destroy us,” he said. “But no one has managed to unite us as much as Putin has.”
AUGSBURG, Germany — Wolfgang Hübschle went into city government expecting a simple life, planning things like traditional festivals replete with lederhosen.
Instead, these days he has the unpopular task of calculating which traffic lights to shut off, how to lower temperatures in offices and swimming pools — and perhaps, if it comes to it, pulling the plug on Bavarians’ beloved but energy-intensive breweries.
Municipal officials like Mr. Hübschle, the economic adviser to the provincial Bavarian city of Augsburg, sit on the front line of a geopolitical struggle with Russia since European Union leaders agreed this week to try to reduce natural gas consumption by 15 percent, fearing that President Vladimir V. Putin could cut exports in retaliation for Europe’s support for Ukraine.
a second pipeline from Russia, until the war forced the project to be suspended.
underlined the threat this week when it reduced flows through Nord Stream 1 into Germany to just 20 percent, citing, unconvincingly for many, problems with its German-made turbines.
Europe’s Shift Away From Fossil Fuels
The European Union has begun a transition to greener forms of energy. But financial and geopolitical considerations could complicate the efforts.
Roughly half of all homes in Germany are heated with gas, while a third of the country’s gas is used by industry. If the coming winter is particularly cold, a cutoff would be brutal.
reopening coal-fired power plants to replace those that burn gas and rapidly expanding infrastructure for liquefied natural gas, along with securing contracts for deliveries from Qatar and the United States.
In a recent social media post, Mr. Habeck admonished people to change their daily habits as part of the effort to reach the country’s goal of saving 20 percent.
“If you think, OK, swapping out the shower head, thawing out the freezer or turning down the heater, none of that makes a difference — you are deceiving yourself,” Mr. Habeck said. “It is an excuse to do nothing.”
Some officials have expressed concern that the government is stoking panic. And some are hoping incentives will encourage careful energy use.
Chancellor Olaf Scholz has pledged to increase housing subsidies and shield renters from evictions over unpaid heating bills. This week, Munich announced an “energy bonus” of 100 euros to households that cut their annual consumption by 20 percent, and its utility company launched an energy-saving competition for customers this autumn.
Germans seem to be responding. The Federal Association of Energy and Water said the country was using almost 15 percent less gas compared to the same period last year, a trend they partly attributed to the record price of energy. Costs will increase further by the beginning of October, when the government introduces a gas surcharge.
In response, space heaters and wood ovens are selling out in many cities, and there is a long wait for mini-solar-panel units to power some home devices.
Claudia Kemfert, an energy economist with the German Institute for Economic Research, said such savings were critical but worried the country had wasted several months with appeals to citizens instead of taking more robust action with business.
Companies have shown they can reduce their gas consumption when they are not given a choice. Automaker Mercedes-Benz said on Wednesday it had trimmed 10 percent of its gas usage, and could cut as much as 50 percent while maintaining full operations.
“There is a lot we can achieve through market-based approaches, we should exhaust every option we have on that front so that we can avoid an emergency situation,” Ms. Kemfert said.
Municipal officials say they will have no way to understand how much their efforts can help until they get more data.
In Munich, capital of the southern state of Bavaria and an epicenter of German industry, the deputy mayor, Katrin Habenschaden, is skeptical.
“I honestly don’t believe that this can be compensated for, as much as I appreciate it through our efforts now to save energy.” she said. “Rather, I believe that we simply need other options or other solutions.”
As the deputy responsible for managing economic affairs, she has been helping the city with a kind of economic triage — assessing what kind of rationing different companies could face. Businesses, big and small, are courting the city, to make their case for why they should be spared.
Bavaria is of particular concern because it is home to companies that are drivers of German industry, like BMW and Siemens. The conservative regional government’s reluctance to challenge its heavy dependence on gas and push forward on renewable energies has also left it particularly vulnerable, Ms. Habenschaden, a Green, argued.
In Augsburg and Munich, local officials have requested that every city employee send their suggestions. One Augsburg civil servant pointed out the city’s two data centers were a major energy drain. They are now considering whether they can rely on just one.
More quietly, many local leaders are pondering which energy-hungry German traditions may have to be put on the chopping block, should the country be forced into energy rationing: Beer making? Christmas markets?
Mr. Hübschle said he believes Bavaria should shut down its famous breweries before letting its chemical industry face gas shortages.
Meanwhile, Rosi Steinberger, a member of Bavaria’s regional parliament, now works in a dark office to cut her consumption, and is debating whether to provoke the inevitable ire of Munich by suggesting it cancel its world-famous Oktoberfest. It is scheduled to return this fall after a two-year pandemic pause.
“I haven’t asked yet,” she said, with a nervous laugh. “But I also think that when people say there should be no taboos in what we consider — well, that’s what you have to think about.”
Russia’s decision to restart the flow of natural gas through a vital pipeline on Thursday brought a moment of relief to Germany, which uses the fuel to power its most important industries and heat half its homes. But it is unlikely to be much more than that.
President Vladimir V. Putin of Russia has made clear that he intends to use his country’s energy exports as a cudgel, and even a weapon, to punish and divide European leaders — loosening or tightening the taps as it suits him and his war aims in Ukraine.
He is counting on that uncertainty to impose heavy economic and political costs on European leaders. Those elected officials are under growing pressure to bring down energy prices and avoid gas rationing that might force factories and government buildings to close and require people to lower thermostats in winter. Leaders in some nations, like Spain and Greece, are already chafing at a European Union plan to have every member country cut its gas use, arguing that they are already much less reliant on Russia than Germany.
Many questions remain about the stability of the gas supplies that began flowing again on the pipeline, the Nord Stream 1, which directly connects Russia and Germany. But, analysts said, it is clear that Europe, and Germany in particular, could remain on edge for months about whether there will be enough energy.
In the weeks leading up to the 10-day shutdown for planned maintenance that just ended, Gazprom, Russia’s state-owned energy monopoly, had already reduced flows through the pipeline to 40 percent of its capacity. Analysts have warned that such levels will not be enough to prevent an energy crisis next winter.
“The resumed gas supplies from Russia via Nord Stream 1 are no reason to give the all clear,” said Siegfried Russwurm, president of the Federation of German Industries. “It remains to be seen whether gas will actually flow in the long term and in the amount contractually agreed.”
He added, “Germany and Europe must not become the plaything of blackmailing Russian politics.”
On Wednesday, Ursula von der Leyen, president of the European Commission, who previously held senior positions in the German government, introduced a proposal for European Union members to reduce their gas consumption 15 percent to prepare for uncertain and possibly unsteady supply before the winter.
Before Russian forces invaded Ukraine in late February, Germany got 55 percent of its natural gas from Russia. Few E.U. countries come close to that level of dependence — a fact that is starting to fracture European unity on Russia and energy policy.
Many Europeans already think Germany, the bloc’s largest economy, is a wealthy neighbor that is not always eager to help weaker countries. That characteristic was most recently highlighted by the country’s attitude toward helping Greece, Spain and other countries that use the euro when they were struggling financially about a decade ago.
Now, some of those very same countries are signaling that they are unwilling to make their businesses and people endure more suffering when energy prices are soaring to help bail Germany out of its dependence on Russia.
The Spanish energy minister, Teresa Ribera, said on Thursday that her country would encourage but not require its citizens to cut gas use. “Unlike other countries, we Spaniards have not lived beyond our means from an energy point of view,” she told El País newspaper, echoing the description some German ministers used during the eurozone crisis.
The Greek government has also pushed back against the European Union’s call for a 15 percent cut in gas use. Although Greece relies on Russia to meet 40 percent of its gas needs, its supplies have not been cut.
Stoking such divisions is at the heart of Mr. Putin’s strategy of cutting off gas deliveries through pipelines that cross Ukraine and Poland while limiting the volume of natural gas flowing under the Baltic Sea through the 760-mile Nord Stream 1 pipeline.
“The entire European energy system is going through a crisis, and even with today’s restart of Nord Stream 1, the region is in a tight position,” Rystad Energy, a research firm, wrote in a market note on Thursday.
Mr. Putin appears to be drawing out the uncertainty about whether and for how long the gas will keep flowing to Germany to try to maximize his leverage as long as he can.
Hours before the flow of gas resumed on Thursday, Gazprom said in a statement that it still had not received documents from Siemens for a turbine that was sent to Canada for repairs. The papers are necessary for the part to be returned, the company said, adding that the engine, and others like it, had “a direct influence on the operational safety of the Nord Stream pipeline.”
Robert Habeck, Germany’s economy minister and vice chancellor, rejected a statement from Gazprom earlier in the day that the resumption of gas through the pipeline was proof that the Russian company was a “guarantor” of energy security in Europe.
“The opposite is the case,” Mr. Habeck said. “It is proving to be a factor of uncertainty.”
The German government has already activated the second of three steps of its gas emergency plan. Included was the swapping of gas-fired power plants with ones that burn coal, which releases many more greenhouse gases into the atmosphere than burning gas. The third and final step would allow the government to ration supplies.
On Thursday, Mr. Habeck announced additional measures aimed at increasing the country’s gas reserves, like conservation incentives that include more ambitious targets for the storage facilities and reactivating power plants that burn lignite — the dirtiest fossil fuel.
He said the government was also weighing strict limits on how people could use gas. For example, the government might forbid people to heat private swimming pools with gas. When pressed on how such measures would be enforced, Mr. Habeck drew a parallel to bans on holding private gatherings during the initial lockdowns of the coronavirus pandemic, which were rarely enforced — unless neighbors alerted the authorities.
“I do not think that the police will visit every homeowner. That is not our intention and not the country I want to live in,” Mr. Habeck said. “But if it was pointed out that someone is not going along with it, then we would certainly look into that.”
Whether Germans, who were among the Europeans most willing to follow public health rules in 2020 when the pandemic started only to rebel months later, will be willing to sacrifice their comfort in solidarity with Ukraine has yet to be fully put to the test.
The German government is facing what Janis Kluge, an analyst on Russia with the German Institute for International and Security Affairs in Berlin, called “a very delicate balance” in how it communicates with the public.
“On the one hand, they have to mobilize everybody to save energy, to save gas and tell everybody that there could be an energy emergency in the winter, while at the same time avoiding that this turns into criticism about the sanctions policy and support for Ukraine,” he said.
“This is exactly what Putin wants to achieve,” Mr. Kluge added. “That when we make the next decision about arms deliveries to Ukraine, that somewhere in the back of our heads, there is this thought, well, what is this going to do to our gas deliveries?”
Berlin has been scrambling to buy more gas from the Netherlands, Norway and the United States. The government has set aside 2.94 billion euros, about $3 billion, to lease four floating terminals in the hopes that they will be operating by midwinter to help ward off a crisis that threatens a recession.
For years, Germany ignored warnings from its neighbors and allies that it was making itself vulnerable by becoming increasingly dependent on Russia for its energy needs.
“Germany will become totally dependent on Russian energy if it does not immediately change course,” President Donald J. Trump said at the United Nations in 2018.
In response, the German delegation, which included the country’s foreign minister, Heiko Maas, laughed.
BERLIN — When the main natural gas artery between Russia and Germany, the Nord Stream 1 pipeline, was taken off-line last week for 10 days of scheduled maintenance, European leaders began bracing for the possibility that President Vladimir V. Putin of Russia would not switch it back on as retaliation for opposing Moscow’s invasion of Ukraine.
But Mr. Putin has suggested that the gas will resume flowing to Europe after the work on the pipeline — controlled by Russia’s state-owned energy giant Gazprom — finishes on Thursday, though he warned that supplies might be further curtailed.
The European Commission called on the bloc’s 27 members to immediately begin taking steps to reduce gas consumption by 15 percent. “Russia is blackmailing us. Russia is using energy as a weapon,” Ursula von der Leyen, president of the commission, told reporters in Brussels on Wednesday.
But analysts have pointed out that if Russia ceased gas flows to Europe, the country would lose an element of leverage in the economic battle it has waged against the continent since the invasion of Ukraine, allowing Mr. Putin to exert control over supplies and prices.
Speaking to reporters late Tuesday in Tehran after meeting with the leaders of Iran and Turkey, Mr. Putin warned that Gazprom would send only “half of the volume intended” through the Nord Stream pipeline. Before it was shut down on July 11 for annual maintenance, flows had already been reduced to 40 percent of capacity.
Maintaining such a reduced flow of natural gas could be advantageous to the Russian leader, analysts said, allowing him to keep Europeans in a protracted state of uncertainty and near panic. Russia has already ceased gas deliveries through other major pipelines to Europe that cross Poland and Ukraine.
“To the extent that Putin maintains some gas flows on Nord Stream 1, he enjoys both income and leverage,” said David L. Goldwyn, a former senior State Department energy diplomat who served in the first term of the Obama administration. “Once he cuts off supply, he loses both and there is no turning back.”
European gas prices have soared to three or four times those of a year ago, causing a jump in inflation and raising concerns over social unrest once temperatures begin to drop.
The European Union imported 45 percent of its natural gas from Russia last year. That fell to only 28 percent in the first three months of this year. At the same time, overall gas imports in the bloc increased, driven largely by a 72 percent jump in purchases of liquefied natural gas.
Gazprom has blamed reduced flows through Nord Stream on a turbine that was sent to Montreal for repairs and could not be returned because of sanctions against Russia. German officials disputed Gazprom’s claim that the turbine could have caused such a cut in flows.
Since then, the German government has secured the return of the equipment, which was made and repaired by Siemens Energy at a plant in Canada. But Mr. Putin said that another one of the turbines in the six compressors near Russia’s Baltic Sea coast was now in need of refurbishing and indicated there were also problems with several others.
“If one more comes, then it’s good, two will work. And if it does not come, there will be one, it will be only 30 million cubic meters per day,” he told reporters. That’s less than 20 percent of the pipeline’s capacity of 160 million cubic meters of gas a day, or 5,600 million cubic feet.
Records on a Nord Stream website indicated that a tiny amount of gas flowed through the pipeline on Tuesday afternoon, in an apparent test. A site run by the Gascade network provider showed that capacity had been booked through Nord Stream for Thursday. These aren’t guarantees that the gas will flow, but it could indicate Russia’s continued interest in piping gas to Europe.
Eswar Prasad, an economist at Cornell University, said keeping a low flow through Nord Stream could strengthen Russia’s position and even weaken Europe’s resolve if the war dragged on.
“Maintaining Europe’s energy dependency on Russia and stoking uncertainty about natural gas supplies, which can only help in boosting prices,” he said, are among the reasons Mr. Putin would want to keep Nord Stream online. There is the added attraction, Mr. Prasad said, of being able “to some extent control Europe’s economic destiny.”
But a return of flows from Russia this week is no guarantee that they will continue in the future or be sufficient for Germany and its European partners to meet their goals to fill gas storage tanks to 80 percent capacity by the beginning of November. In Germany, where half the homes are heated by natural gas and the fuel is necessary for the chemical, steel and paper industries, storage levels reached 65 percent by Wednesday — just above the European average.
This week, Ms. von der Leyen traveled to Azerbaijan to secure a deal to double the imports of Azeri natural gas to at least 20 billion cubic meters (706 billion cubic feet) a year by 2027 as part of efforts across Europe to secure gas from sources beyond Russia.
Germany has turned to the Netherlands and Norway for more gas, as well as buying more liquefied natural gas from the United States and Qatar. But none of Europe’s 26 L.N.G. terminals, which are needed to convert the gas from its deep-chilled state back into a gas, are in Germany.
Robert Habeck, Germany’s economy minister and vice chancellor, has secured 2.94 billion euros to rent four floating L.N.G. terminals. The first are scheduled to be in operation by the end of the year.
But if Europe faces an unusually cold winter, that might not be soon enough to ensure that Germany keeps its homes heated and factories running. Germany has already activated two steps of a three-stage “gas emergency” plan, bringing back coal-fired power plants to replace those run by gas and running through scenarios of what would happen if the gas is cut off entirely.
To some observers, the panic of recent weeks is exactly what Mr. Putin wants.
“Will he give us gas? Will he cut the flow? Europe is hanging on Putin’s lips again,” Janis Kluge, an analyst on Russia with the German Institute for International and Security Affairs in Berlin, wrote on Twitter. “However the Nord Stream 1 saga continues, he is definitely loving every part of it.”
Melissa Eddy reported from Berlin, and Patricia Cohen from London. Matina Stevis-Gridneff contributed reporting from Brussels, and Anton Troianovski from Berlin.
This past week brought home the magnitude of the overlapping crises assailing the global economy, intensifying fears of recession, job losses, hunger and a plunge on stock markets.
At the root of this torment is a force so elemental that it has almost ceased to warrant mention — the pandemic. That force is far from spent, confronting policymakers with grave uncertainty. Their policy tools are better suited for more typical downturns, not a rare combination of diminishing economic growth and soaring prices.
Major economies including the United States and France reported their latest data on inflation, revealing that prices on a vast range of goods rose faster in June than anytime in four decades.
China reported that its economy, the world’s second-largest, expanded by a mere 0.4 percent from April through June compared with the same period last year. That performance — astonishingly anemic by the standards of recent decades — endangered prospects for scores of countries that trade heavily with China, including the United States. It reinforced the realization that the global economy has lost a vital engine.
The specter of slowing economic growth combined with rising prices has even revived a dreaded word that was a regular part of the vernacular in the 1970s, the last time the world suffered similar problems: stagflation.
Most of the challenges tearing at the global economy were set in motion by the world’s reaction to the spread of Covid-19 and its attendant economic shock, even as they have been worsened by the latest upheaval — Russia’s disastrous attack on Ukraine, which has diminished the supply of food, fertilizer and energy.
“The pandemic itself disrupted not only the production and transportation of goods, which was the original front of inflation, but also how and where we work, how and where we educate our children, global migration patterns,” said Julia Coronado, an economist at the University of Texas at Austin, speaking this past week during a discussion convened by the Brookings Institution in Washington. “Pretty much everything in our lives has been disrupted by the pandemic, and then we layer on to that a war in Ukraine.”
Great Supply Chain Disruption.
meat production to shipping exploited their market dominance to rack up record profits.
The pandemic prompted governments from the United States to Europe to unleash trillions of dollars in emergency spending to limit joblessness and bankruptcy. Many economists now argue that they did too much, stimulating spending power to the point of stoking inflation, while the Federal Reserve waited too long to raise interest rates.
8 Signs That the Economy Is Losing Steam
Card 1 of 9
Worrying outlook. Amid persistently high inflation, rising consumer prices and declining spending, the American economy is showing clear signs of slowing down, fueling concerns about a potential recession. Here are other eight measures signaling trouble ahead:
Consumer confidence. In June, the University of Michigan’s survey of consumer sentiment hit its lowest level in its 70-year history, with nearly half of respondents saying inflation is eroding their standard of living.
The housing market. Demand for real estate has decreased, and construction of new homes is slowing. These trends could continue as interest rates rise, and real estate companies, including Compass and Redfin, have laid off employees in anticipation of a downturn in the housing market.
Copper. A commodity seen by analysts as a measure of sentiment about the global economy — because of its widespread use in buildings, cars and other products — copper is down more than 20 percent since January, hitting a 17-month low on July 1.
Oil. Crude prices are up this year, in part because of supply constraints resulting from Russia’s invasion of Ukraine, but they have recently started to waver as investors worry about growth.
The bond market. Long-term interest rates in government bonds have fallen below short-term rates, an unusual occurrence that traders call a yield-curve inversion. It suggests that bond investors are expecting an economic slowdown.
Now playing catch-up, central banks like the Fed have moved assertively, lifting rates at a rapid clip to try to snuff out inflation, even while fueling worries that they could set off a recession.
Given the mishmash of conflicting indicators found in the American economy, the severity of any slowdown is difficult to predict. The unemployment rate — 3.6 percent in June — is at its lowest point in almost half a century.
American consumers have enhanced fears of a downturn. This past week, the International Monetary Fund cited weaker consumer spending in slashing expectations for economic growth this year in the United States, from 2.9 percent to 2.3 percent. Avoiding recession will be “increasingly challenging,” the fund warned.
Orwellian lockdowns that have constrained business and life in general. The government expresses resolve in maintaining lockdowns, now affecting 247 million people in 31 cities that collectively produce $4.3 trillion in annual economic activity, according to a recent estimate from Nomura, the Japanese securities firm.
But the endurance of Beijing’s stance — its willingness to continue riding out the economic damage and public anger — constitutes one of the more consequential variables in a world brimming with uncertainty.
sanctions have restricted sales of Russia’s enormous stocks of oil and natural gas in an effort to pressure the country’s strongman leader, Vladimir V. Putin, to relent. The resulting hit to the global supply has sent energy prices soaring.
The price of a barrel of Brent crude oil rose by nearly a third in the first three months after the invasion, though recent weeks have seen a reversal on the assumption that weaker economic growth will translate into less demand.
major pipeline carrying gas from Russia to Germany cut the supply sharply last month, that heightened fears that Berlin could soon ration energy consumption. That would have a chilling effect on German industry just as it contends with supply chain problems and the loss of exports to China.
euro, which has surrendered more than 10 percent of its value against the dollar this year. That has increased the cost of Europe’s imports, another driver of inflation.
ports from the United States to Europe to China.
“Everyone following the economic situation right now, including central banks, we do not have a clear answer on how to deal with this situation,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Norway. “You have a lot of things going on at the same time.”
Understand Inflation and How It Impacts You
The most profound danger is bearing down on poor and middle-income countries, especially those grappling with large debt burdens, like Pakistan, Ghana and El Salvador.
As central banks have tightened credit in wealthy nations, they have spurred investors to abandon developing countries, where risks are greater, instead taking refuge in rock-solid assets like U.S. and German government bonds, now paying slightly higher rates of interest.
This exodus of cash has increased borrowing costs for countries from sub-Saharan Africa to South Asia. Their governments face pressure to cut spending as they send debt payments to creditors in New York, London and Beijing — even as poverty increases.
U.N. World Food Program declared this month.
Among the biggest variables that will determine what comes next is the one that started all the trouble — the pandemic.
The return of colder weather in northern countries could bring another wave of contagion, especially given the lopsided distribution of Covid vaccines, which has left much of humanity vulnerable, risking the emergence of new variants.
So long as Covid-19 remains a threat, it will discourage some people from working in offices and dining in nearby restaurants. It will dissuade some from getting on airplanes, sleeping in hotel rooms, or sitting in theaters.
Since the world was first seized by the public health catastrophe more than two years ago, it has been a truism that the ultimate threat to the economy is the pandemic itself. Even as policymakers now focus on inflation, malnutrition, recession and a war with no end in sight, that observation retains currency.
“We are still struggling with the pandemic,” said Ms. Haugland, the DNB Markets economist. “We cannot afford to just look away from that being a risk factor.”
Russian natural gas has fired the furnaces that create molten stainless steel at Clemens Schmees’s family foundry since 1961, when his father set up shop in a garage in the western part of Germany.
It never crossed Clemens’s mind that this energy flow could one day become unaffordable or cease altogether. Now Mr. Schmees, like thousands of other chieftains at companies across Germany, is scrambling to prepare for the possibility that his operations could face stringent rationing this winter if Russia turns off the gas.
“We’ve had many crises,” he said, sitting in the company’s branch office in the eastern city of Pirna, overlooking the Elbe River valley. “But we have never before had such instability and uncertainty, all at once.”
Nord Stream 1, the direct gas pipeline between Russia and Europe, was shut down for 10 days of scheduled maintenance.
“gas crisis” and triggered an emergency energy plan. Already landlords, schools and municipalities have begun to lower thermostats, ration hot water, close swimming pools, turn off air-conditioners, dim streetlights and exhort the benefits of cold showers. Analysts predict that a recession in Germany is “imminent.” Government officials are racing to bail out the largest importer of Russian gas, a company called Uniper. And political leaders warn that Germany’s “social peace” could unravel.
The crisis has not only set off a frantic clamber to manage a potentially painful crunch this winter. It has also prompted a reassessment of the economic model that turned Germany into a global powerhouse and produced enormous wealth for decades.
Jacob Kirkegaard, a senior fellow at the German Marshall Fund in Brussels.
The Russia-Ukraine War and the Global Economy
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A far-reaching conflict. Russia’s invasion on Ukraine has had a ripple effect across the globe, adding to the stock market’s woes. The conflict has caused dizzying spikes in gas prices and product shortages, and has pushed Europe to reconsider its reliance on Russian energy sources.
Russia’s economy faces slowdown. Though pro-Ukraine countries continue to adopt sanctions against the Kremlin in response to its aggression, the Russian economy has avoided a crippling collapse for now thanks to capital controls and interest rate increases. But Russia’s central bank chief warned that the country is likely to face a steep economic downturn as its inventory of imported goods and parts runs low.
Trade barriers go up. The invasion of Ukraine has also unleashed a wave of protectionism as governments, desperate to secure goods for their citizens amid shortages and rising prices, erect new barriers to stop exports. But the restrictions are making the products more expensive and even harder to come by.
Prices of essential metals soar. The price of palladium, used in automotive exhaust systems and mobile phones, has been soaring amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, another key Russian export, has also been rising.
More than any other economy in the region, Germany’s is built on industrial giants — mighty chemical, auto, glass and steel producers — that consume enormous amounts of fuel, two-thirds of it imported. The chemical and pharmaceutical industries alone use 27 percent of the country’s gas supply.
Most of it came from Russia. Before Mr. Putin invaded Ukraine five months ago and set off retaliatory sanctions from Europe, the United States and their allies, Russia delivered 40 percent of Germany’s imported oil and more than 55 percent of its imported gas.
Gazprom, Russia’s gas monopoly, cut deliveries in June, and if they are reduced further, German industries may soon confront fuel shortages that will compel them to scale back production, Mr. Kirkegaard said. “I don’t think there are that many other European countries that have to do that,” he said.
Over the next five to eight years, until more of an ongoing transition to renewable energy is completed, the country will be “under acute pressure,” he added. “That is the time period when Germany’s economy is still basically going to be fueled by fossil fuels.”
China, Germany’s biggest trading partner, is expected to see substantially slower growth than in the previous decade, reporting on Friday that the economy expanded just 0.4 percent in the second quarter. That slowdown is likely to ripple through other emerging nations in Asia, dragging down their growth as well.
security risks of globalized trade?
Some economists have argued that the German business models were partly based on an erroneous assumption and that cheap Russian gas wasn’t as cheap as it looked.
The economist Joseph Stiglitz, a Nobel laureate, said the market failed to accurately price in the risk — however unlikely it may have seemed at the time — that Russia could decide to reduce or withhold gas to apply political pressure.
It would be like figuring the costs of building a ship without including the cost of lifeboats.
“They didn’t take into account what could happen,” Mr. Stiglitz said.
Inflation last month was 7.6 percent. Investor confidence in Germany has dropped to its lowest point in a decade.
Households, hospitals and essential services will be considered priorities if gas rationing becomes unavoidable, but industrial representatives have been pleading their cases in Berlin.
as much as 12 percent once ripple effects on industries beyond energy and consumers were taken into account.
Looking ahead to the winter, Mr. Krebs said much depended on the temperature and Russian gas delivery levels.
“The best case is stagnation with high inflation,” he said. But over the longer term, he argued, Germany could come out more competitive if it manages the energy transition well and provides speedy and significant public investment to create the requisite infrastructure.
Marcel Fratzscher, president of the German Institute for Economic Research, agreed. Germany’s industrial success is based on added value more than cheap energy, he said. Most German exports, he said, are “highly specialized products — that gives them an advantage and makes them competitive.”
Labor policy, too, will have an impact.
Wage negotiations for the industrial sector are scheduled to begin in September. The powerful I.G. Metall union will seek an 8 percent wage increase for its 3.9 million members. And starting Oct. 1, a new minimum wage law will establish for the first time a single national rate — 12 euros an hour.
For now, supply chain breakdowns are still causing headaches, and businesses that were only beginning to recover from the Covid-19 pandemic are busy devising contingency plans for gas shortages.
Beiersdorf, maker of skin care products including Nivea, has had a crisis team in place since May to draw up backup plans — including readying diesel generators — to ensure production keeps running.
At Schmees, high costs have already forced the shutdown of one furnace, cutting into the foundry’s ability to meet deadlines. Customers waiting for deliveries of stainless steel include companies that run massive turbines used in icebreaker ships and artists who use it in their sculptures.
Mr. Schmees, an energetic man who prides himself on having nurtured a strong company culture, is planning to ask his employees to work a six-day week through the end of the year, to ensure that he can fill all of the firm’s orders by December. That is how long he’s betting that Germany’s natural gas supplies will hold if Russia cuts off the flow entirely.
“The tragedy,” Mr. Schmees said, “is that we have only now realized what we’ve gambled away with this cheap gas from Russia.”
Katrin Bennhold contributed reporting from Berlin.
“NO ES SUFICIENTE” — It’s not enough. That was the message protest leaders in Ecuador delivered to the country’s president this past week after he said he would lower the price of both regular gas and diesel by 10 cents in response to riotous demonstrations over soaring fuel and food prices.
The fury and fear over energy prices that have exploded in Ecuador are playing out the world over. In the United States, average gasoline prices, which have jumped to $5 per gallon, are burdening consumers and forcing an excruciating political calculus on President Biden ahead of the midterm congressional elections this fall.
But in many places, the leap in fuel costs has been much more dramatic, and the ensuing misery much more acute.
Britain, it costs $125 to fill the tank of an average family-size car. Hungary is prohibiting motorists from buying more than 50 liters of gas a day at most service stations. Last Tuesday, police in Ghana fired tear gas and rubber bullets at demonstrators protesting against the economic hardship caused by gas price increases, inflation and a new tax on electronic payments.
largest exporter of oil and gas to global markets, and the retaliatory sanctions that followed have caused gas and oil prices to gallop with an astounding ferocity. The unfolding calamity comes on top of two years of upheaval caused by the Covid-19 pandemic, off-and-on shutdowns and supply chain snarls.
World Bank revised its economic forecast last month, estimating that global growth will slow even more than expected, to 2.9 percent this year, roughly half of what it was in 2021. The bank’s president, David Malpass, warned that “for many countries, recession will be hard to avoid.”
ratcheting down gas deliveries to several European countries.
Across the continent, countries are preparing blueprints for emergency rationing that involve caps on sales, reduced speed limits and lowered thermostats.
As is usually the case with crises, the poorest and most vulnerable will feel the harshest effects. The International Energy Agency warned last month that higher energy prices have meant an additional 90 million people in Asia and Africa do not have access to electricity.
Expensive energy radiates pain, contributing to high food prices, lowering standards of living and exposing millions to hunger. Steeper transportation costs increase the price of every item that is trucked, shipped or flown — whether it’s a shoe, cellphone, soccer ball or prescription drug.
Understand Inflation and How It Impacts You
“The simultaneous rise in energy and food prices is a double punch in the gut for the poor in practically every country,” said Eswar Prasad, an economist at Cornell University, “and could have devastating consequences in some corners of the world if it persists for an extended period.”
Group of 7 this past week discussed a price cap on exported Russian oil, a move that is intended to ease the burden of painful inflation on consumers and reduce the export revenue that President Vladimir V. Putin is using to wage war.
Price increases are everywhere. In Laos, gas is now more than $7 per gallon, according to GlobalPetrolPrices.com; in New Zealand, it’s more than $8; in Denmark, it’s more than $9; and in Hong Kong, it’s more than $10 for every gallon.
Leaders of three French energy companies have called for an “immediate, collective and massive” effort to reduce the country’s energy consumption, saying that the combination of shortages and spiking prices could threaten “social cohesion” next winter.
increased coal production to avoid power outages during a blistering heat wave in the northern and central parts of the country and a subsequent rise in demand for air conditioning.
Germany, coal plants that were slated for retirement are being refired to divert gas into storage supplies for the winter.
There is little relief in sight. “We will still see high and volatile energy prices in the years to come,” said Fatih Birol, the executive director of the International Energy Agency.
At this point, the only scenario in which fuel prices go down, Mr. Birol said, is a worldwide recession.
Reporting was contributed by José María León Cabrera from Ecuador, Lynsey Chutel from South Africa, Ben Ezeamalu from Nigeria, Jason Gutierrez from the Philippines, Oscar Lopez from Mexico and Ruth Maclean from Senegal.
BERLIN — Russia’s invasion of Ukraine seemed like an unexpected opportunity for environmentalists, who had struggled to focus the world’s attention on the kind of energy independence that renewable resources can offer. With the West trying to wean itself from Russian oil and gas, the argument for solar and wind power seemed stronger than ever.
But four months into the war, the scramble to replace Russian fossil fuels has triggered the exact opposite. As the heads of the Group of 7 industrialized nations gather in the Bavarian Alps for a meeting that was supposed to cement their commitment to the fight against climate change, fossil fuels are having a wartime resurgence, with the leaders more focused on bringing down the price of oil and gas than immediately reducing their emissions.
Nations are reversing plans to stop burning coal. They are scrambling for more oil and are committing billions to building terminals for liquefied natural gas, known as L.N.G.
coal plants that had been shuttered or were scheduled to be phased out.
as top economic officials in Ukraine, say it would serve two key purposes: increasing the global supply of oil to put downward pressure on oil and gasoline prices, while reducing Russia’s oil revenue.
Proponents say it is likely that Russia would continue to produce and sell oil even at a discount because it would be easier and more economical than capping wells to cut production. Simon Johnson, an economist at the Massachusetts Institute of Technology, estimates that it could be in Russia’s economic interest to continue selling oil with a price cap as low as $10 a barrel.
Some proponents say it is possible that China and India would also insist on paying the discounted price, further driving down Russian revenues.
Critics charge that building all 12 terminals would produce an excess capacity. But even half that number would produce three-quarters of the carbon emissions Germany is allowed under international agreements, according to a recent report published by a German environmental watchdog. The terminals would be in use until 2043, far too long for Germany to become carbon neutral by 2045, as pledged by Mr. Scholz’s government.
And countries are not just investing in infrastructure at home.
Last month, Mr. Scholz was in Senegal, one of the developing countries invited to the Group of 7 summit, to discuss cooperating not just on renewables but also on gas extraction and L.N.G. production.
In promoting the Senegal gas project, analysts say, Berlin is violating its own Group of 7 commitment not to offer public financing guarantees for fossil fuel projects abroad.
These contradictions have not gone unnoticed by poorer nations, which are wondering how Group of 7 countries can push for commitments to climate targets while also investing in gas production and distribution.
One explanation is a level of lobbying among fossil fuel companies not seen for years, activists say.
“It looks to me like an attempt by the oil and gas industry to end-run the Paris Agreement,” said Bill Hare of Climate Analytics, an advisory group in Berlin, referring to the landmark 2015 international treaty on climate change. “And I’m very worried they might succeed.”
Ms. Morgan in the German Foreign Ministry shares some of these concerns. “They’re doing everything that they can to move it forward, also in Africa,” she said of the industry. “They want to lock it in. Not just gas, but oil and gas and coal.”
But she and others are still hopeful that the Group of 7 can become a platform for tying climate goals to energy security.
Environmental and foreign policy analysts argue that the Group of 7 could support investments in renewable energy and energy efficiency, while pledging funds for poorer nations hit with the brunt of climate disasters.
Above all, activists warn, rich countries need to resist the temptation to react to the short-term energy shortages by once again betting on fossil fuel infrastructure.
“All the arguments are on the table now,” said Ms. Neubauer, the Fridays for Future activist. “We know exactly what fossil fuels do to the climate. We also know very well that Putin is not the only autocrat in the world. We know that no democracy can be truly free and secure as long as it depends on fossil fuel imports.”
Katrin Bennhold Bennhold reported from Berlin, and Jim Tankersley from Telfs, Austria. Erika Solomon and Christopher F. Schuetze contributed reporting from Berlin.