Russia’s war in Ukraine has become the biggest economic challenge of President Biden’s presidency, threatening to plunge the world into a recession that could jeopardize an already fragile US recovery.
The combination of sanctions advocated by Mr Biden and his allies, and Russian retaliation has spread across global food and energy markets, exacerbating inflation. capital is already high and dampens global growth. An oil shock caused by the invasion drives up average gas prices over $5 a gallon nationwide in Junebefore they taper off in July and August.
This week, the European Union is expected to finalize a plan to prevent further economic damage by impose a cap about the price Russia can earn from selling a barrel of oil exports. The untested idea, floated by Mr Biden’s Treasury secretary, is aimed at keeping Russian oil flowing to the global market even as Europe introduces new restrictions on Moscow’s oil sales. .
Over the next year, that price cap and other efforts to manage the global consequences of war should be Biden’s primary economic focus. With few legislative options available after his party lose control of the HouseMr. Biden will need to find ways to insulate US markets from the effects of war, including new international initiatives to boost food supplies and prevent a potentially escalating financial crisis. in developing countries.
Mr. Biden and his economic team spent the majority Group of 20 summits This month in Bali, Indonesia, laid the foundation for those efforts. They have been negotiating with wealthy nations about the best ways to boost global food production to replace crops lost in Ukraine, in the hope of easing food shortages that are taking a particularly toll. for low-income countries. And they have tried to broker the advancement of a system to make it easier to bail out the high-indebted, lower-income countries – like Sri Lanka and Chad – that are facing the crisis. financial markets as rising prices due to war prompted central banks to raise interest rates and with them, borrowing costs.
But Mr. Biden’s biggest economic decisions in the coming months have to do with war: how to best support Ukraine’s resistance to Russian aggression and how aggressively to push for it. to end the fighting.
Gita Gopinath, first deputy executive director of the International Monetary Fund who has participated in the G20 meetings, said: “The war is a humanitarian crisis for Ukraine, but “it is also extreme. costly period for the world”. “We were in a pretty tough situation even without a dramatic escalation.”
Ms Gopinath said that during the summit, “one common chorus was that wars need to be stopped, because the consequences for the economy are huge.”
Government officials agree that the best way to strengthen the global economy in the coming months is hasten the end of the war – which Mr. Biden has repeatedly said must be subject to Ukraine’s conditions.
Meanwhile, administration officials say central to their efforts to mitigate the economic damage is a plan to impose a ceiling on oil prices – at a level that European officials are currently seeking. still haggling – on Russian exports. Mr. Biden pushed the idea through months of transcontinental negotiations. Its goal is to keep millions of barrels of Russian oil flowing to the global market even as European sanctions go into effect – while limiting the reduction in revenue Moscow needs to continue its war effort. painting.
On Monday, John Kirby, the National Security Council’s Strategic Communications Coordinator, told reporters that what is having a “very serious, significant global impact on the economy is the war in Ukraine. And that is why we are trying to pursue a price ceiling on Russian oil.”
The plan is essentially a way to avoid a potentially catastrophic global oil shock that Biden could have helped cause this year as he encouraged Europe to follow his lead. America and ban on imports of Russian oil. Administration officials are confident the ceiling will do the trick, keeping oil in the market, although the high price cap will limit its effect on Russian revenue.
Ben Harris, assistant secretary for economic policy at the Treasury Department, said in an interview: “It is safe to say that we are optimistic that successful price restraints will avoid an energy price shock. large amounts. “This is a case of planning ahead to avoid a crisis,” he added.
The president has few options at home if those plans fail. With his party losing control of the House, Biden will almost certainly have limited ability to push new economic measures through Congress over the next two years.
International Monetary Fund and Organization for Economic Cooperation and Development cut its forecast for global growth next year, citing lingering drag from the Russian invasion.
War, the leaders of the Group of 20 said in a statement at the end of their summit in Bali, “is causing enormous human suffering and exacerbating existing weaknesses.” present in the global economy – slowing growth, increasing inflation, disrupting supply chains, raising energy and food insecurity, and increasing financial stability risks.”
Mr. Biden cannot end the war on his own. But he can find a way to minimize its economic damage.
That starts with the price cap. The European Union’s ban on Russian oil imports will take effect next month. Those sanctions could knock millions of barrels of Russian oil off the global market and send crude prices soaring.
The price ceiling attempts to assuage that possibility with a new but untested plan to allow Russia to continue selling oil on the global market, but at a discount. That would reduce the oil revenue that Moscow is using to finance the war. It would also keep oil prices more stable and avoid levels that some forecasters have estimated could reach as high as $7 a gallon in the United States. And it would ease some of the strain on economically struggling developing nations, by allowing them to buy Russian oil at a steep discount to market prices.
Oil futures traders seem to share the administration’s belief that the plan will work: They are not pricing in any disruption to the market in the coming months.
Russia could still retaliate against the plan and pull oil out of the market, sending prices soaring again but also cutting revenue for Moscow. It can also increase economic risks to the world by escalating war.
Moscow has recently stepped up missile attacks on Ukrainian targets, including civilians. A seemingly accidental explosion of a Ukrainian missile in Poland has remind the world of the risks about the escalation of the conflict that could spill over Ukraine and into Europe and beyond. So far, Mr. Biden has succeeded in preventing escalation by preventing the conflict from directly affecting NATO allies such as Poland. More stray missiles — or Moscow’s provocations — could challenge that calculus.
Mr. Biden affirmed that the US economy with the labor market continues to grow adding jobs at a hot rate, is well-positioned to endure any new drag on the global economy due to the invasion. His aides note that the United States, as a major energy producer, is not as impacted as Europe by Russia’s lack of access to oil or natural gas.
So far, he has faced little domestic political pressure over his decisions in Ukraine. Although the war has flooded the news and took up most of Mr. Biden’s time, including occasional speeches, it has yet to become a major election issue. According to data from AdImpact, Ukraine did not make the list of the top 60 topics of the nationwide advertising campaign during the midterm election cycle.
But if Mr. Biden runs for re-election, the economics of the war could play a big role. It can drive up gas prices, which tends to affect public opinion of the president. Stubbornly high food and energy inflation could prompt the Federal Reserve to raise interest rates faster and longer than officials currently forecast. That would slow growth and increase the likelihood of a recession.
Mr. Biden has repeatedly said those threats will not stop him from doing what he believes is right in Ukraine. When asked at a news conference in Spain this summer how long Americans will have to pay higher gas prices due to the war, Mr. Biden was blunt. “As long as it is, Russia cannot, in fact, defeat Ukraine and go beyond Ukraine,” he said. This is a vital, dangerous position for the world. Here we are.”
During a press conference in Bali this month — after both surprising success in the midterm elections and several days of focusing on economic issues in conversations with foreign leaders — Mr. Biden did not specify any updates on how long defeating Russia might take and what damage it could do to the economy.
He answered only five questions, none on economic matters.
Alan Rappeport contribution report.
