U.S. officials believe Putin’s belligerent rhetoric is at least partly a bluff, as Russia needs energy export revenues to fund its war effort, even at lower prices. But President Biden’s aides have been reviewing their efforts to export liquefied natural gas to Europe in recent days, in a bid to see if there’s a way for U.S. producers to help. (Nearly 40% of the natural gas Europe uses for heat and power came from Russia before the war began.) And while White House aides don’t think a recession in Europe in would necessarily cause a here, a complete halt in Russian oil exports would seriously harm the US economy, according to economists, energy analysts and internal White House assessments.
Escalating pressure from Russia could put further strain on a US-European alliance that has proven surprisingly resilient since the start of the war, while also threatening to obscure the Biden administration’s recent economic victories. before the midterm elections this fall.
Some Wall Street economists and analysts have said inflation could peak after an encouraging federal report for July. Administration aides, however, fear the situation could quickly escalate again if Putin halts oil and gas shipments, two White House officials said, speaking on condition of anonymity. because they were not allowed to speak publicly.
Perspectives in Europe has deteriorated at surprising speed in recent weeks. The European Central Bank raised interest rates by 0.75 points last week, with officials saying they expected a “substantial slowdown” this fall. Some European governments are resist attempts to set a price cap on natural gas for fear of provoking Putin, and it is not clear that international economic sanctions against Russia could withstand a truly serious energy crisis.
Publicly, Biden administration officials are announcing good economic news at home. Biden and Treasury Secretary Janet L. Yellen embarked on a victory tour last week to tout a string of legislative victories — particularly the Cut Inflation Act, passed with Democratic votes only — aimed at large-scale changes in the US economy. Their feeling of optimism was supported by a dozen consecutive weeks of falling gasoline prices. Unemployment claims have also fallen in recent weeks, allaying fears of a looming recession, and voter anger over inflation appears at least somewhat subsided, helping Democrats’ polls improve.
White House officials — and most economists — believe the growing likelihood of a recession in Europe is unlikely to change under the current trajectory. A senior administration official, who spoke on condition of anonymity to reflect internal assessments, said the Treasury Department and the Board of Economic Advisers believe the impact on the United States of a European recession would probably be ‘modest and manageable’. Trade with Europe accounts for less than 1% of US gross domestic product, and many economists agree that a drop in European consumer demand is unlikely to materially affect US businesses. America also produces enough of its own natural gas not to be significantly affected by Russia’s restriction of its flow to Europe.
If Russia continued to sell oil on world markets and only reduced its gas exports to Europe, the effect on the US economy would likely be minimal. In fact, it could help American companies that produce natural gas. It could also undermine global demand, further easing domestic price pressures.
“If Europe goes into recession, obviously there is less demand for a wide range of products,” said Dean Baker, an economist and co-founder of the Center for Economic and Policy Research, a liberal think tank. “We’re in such a perverse situation here that it can actually be positive.”
US options for helping Europe through its energy crisis may be limited. Already, the Biden administration has overseen a massive expansion in the amount of liquefied natural gas shipped from U.S. frackers to Europe, with about 70% of U.S. gas exported to Europe, according to administration estimates. The United States is already exceeding its goal of transporting an additional 15 billion cubic meters of natural gas to Europe this year. Since March, U.S. companies have delivered 30 billion cubic meters to Europe, more than double the same period last year, administration officials said.
Administration aides have been brainstorming in recent days about ways to increase that even further, as Europe considers drastic measures to deal with the power shortage. (Administration officials have pointed out that the White House has been looking for months for any way to increase natural gas exports to Europe.) But there doesn’t appear to be a quick way to increase terminal capacity. that help ship gas across the Atlantic.
“We are, of course, very concerned about the whole global outlook,” Yellen told reporters on Thursday during a trip to Dearborn, Michigan, to tout how the Democrats’ legislation will boost Ford’s production of new electric vehicles. . “We are doing everything we can on the LNG front to be helpful.”
But a complete shutdown of Russian oil would further threaten the US economy. Yellen has for months led its international counterparts by pushing the allies to unite around a fixed price for the purchase of Russian oil, arguing that this could simultaneously undermine the Kremlin’s finances while protecting the world economy from energy shocks.
Moscow reacted furiously. Speaking at a conference last week after the Group of Seven industrialized nations agreed to implement the measure, Putin said Russia’s reaction would be to “deliver nothing”. “We will not supply gas, oil, coal, fuel oil,” he said.
United States announced a ban on Russian oil purchases in Marchbut if international oil prices skyrocket because of a complete shutdown of Russian exports, American consumers would feel it.
“If Europe plunges into a depression after Russia halts energy exports and oil rises to $150 a barrel, there is a possible impact on the United States there that is really bad” , said Matthew J. Slaughter, an economist at Dartmouth College.
That’s enough to worry economists whose optimistic forecasts White House aides like to quote.
“Russia will stop oil exports before it gets a big price discount,” said Mark Zandi, economist at Moody’s Analytics. “This will push the economy into recession. Gasoline prices will skyrocket, returning above its all-time high of $5 a gallon almost overnight. The economy can’t digest $5 a gallon – that would be overwhelming.
For now, however, Treasury officials are publicly adamant that Putin will not follow through on this threat. They also note that Europe had planned to implement a full embargo on Russian oil, and that the price cap presents an opportunity for the Kremlin to continue supplying world markets.
“Russia can brag and say they won’t sell below the price cap, but the economics of holding back oil just doesn’t make sense,” Deputy Treasury Secretary Wally Adeyemo said on Friday.