US officials believe Putin’s bellicose rhetoric is, at least in part, a hoax, as Russia needs revenue from energy exports to finance its war effort, even at lower prices. But aides to President Biden have in recent days reviewed his efforts to export liquefied natural gas to Europe, with the aim of seeing if US producers can help in any way. (Nearly 40 percent of the natural gas Europe uses for heating and electricity came from Russia before the war began.) And while White House advisers don’t think a recession in Europe will necessarily cause one here, a complete shutdown of Russian oil exports would seriously hurt the US economy, according to economists, energy analysts and internal White House assessments.
Mounting pressure from Russia could put new strains on a US-European alliance that has proven surprisingly resilient since the start of the war, while also threatening to cloud recent economic victories by the Biden administration ahead of the midterm elections. this autumn.
Some economists and Wall Street analysts have said that inflation could be peaking. after an encouraging federal report in July. Administration advisers, however, are concerned the situation could rapidly worsen again if Putin cuts off oil and gas shipments, said two White House officials, who spoke on condition of anonymity because they were not authorized to speak officially. .
the perspective in Europe it has deteriorated with surprising speed in recent weeks. The European Central Bank raised interest rates by 0.75 point last week, and officials said they expected a “substantial slowdown” there this fall. Some European governments are resisting attempts to put a cap on the price of natural gas for fear of provoking Putin, and it is not clear that international economic sanctions against Russia can withstand a truly terrible energy crisis.
Publicly, Biden administration officials are delivering good economic news at home. Biden and Treasury Secretary Janet L. Yellen embarked on a victory tour last week to tout a series of legislative victories, notably the Inflation Reduction Act, approved only with democratic votes — aimed at large-scale changes in the US economy. His sense of optimism has been buoyed by a dozen consecutive weeks of falling gasoline prices. Jobless claims have also declined in recent weeks, allaying fears of an impending recession, and voter anger over inflation appears to be at least somewhat calming, helping to improve Democrats’ poll numbers.
White House officials, and most economists, believe the growing likelihood of a recession in Europe is unlikely to change on the current trajectory. A senior administration official, speaking on condition of anonymity to reflect internal assessments, said the Treasury Department and the Council of Economic Advisers estimate the impact of a European recession on the United States would likely be “modest and manageable.” Trade with Europe accounts for less than 1 percent of US gross domestic product, and many economists agree that a decline in European consumer demand would likely not materially affect US businesses. The United States also produces enough natural gas of its own so as not to be significantly affected by Russia’s restriction of its flow to Europe.
If Russia continues to sell oil to world markets and only cuts gas exports to Europe, the effect on the US economy would likely be minimal. In fact, that could help US companies that produce natural gas. It could also undermine global demand, further easing domestic price pressures.
“If Europe goes into recession, obviously there will be 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 wicked situation here that it can actually be a positive.”
America’s options to help Europe overcome its energy crisis may be limited. The Biden administration has already overseen a massive expansion in the amount of liquefied natural gas being shipped from US frackers to Europe, with roughly 70 percent of gas exported from the US now going to Europe, according to management evaluations. 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, US companies have delivered 30 billion cubic meters to Europe, more than double the amount during the same period last year, administration officials said.
Administration aides have devised ways in recent days to increase that even further, as Europe considers draconian measures to deal with power shortages. (Administration officials stressed that the White House has been looking for months at any possible way to increase natural gas exports to Europe.) But there seems to be no quick way to increase the capacity of the terminals that help ship gas across the Atlantic.
“Of course, we’re very concerned about the whole global picture,” Yellen told reporters Thursday while traveling to Dearborn, Michigan, to tout how the Democrats’ legislation will boost production of new Ford 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 his international counterparts by pressing allies to unite around a fixed price for buying Russian oil, arguing that it could simultaneously undermine the Kremlin’s finances and protect the world economy from energy shocks.
Moscow has reacted furiously. Speaking at a conference last week after the Group of Seven industrialized countries agreed to implement the measure, Putin said Russia’s reaction would be “not to supply anything.” “We will not supply gas, oil, coal, heating oil,” he said.
The United States announced a ban on Russian oil purchases in MarchBut if international oil prices soar due to a complete shutdown of Russian exports, American consumers would take notice.
“If Europe sinks into a depression after Russia shuts down energy exports and oil goes up to $150 a barrel, there’s a potential hit to the US there that’s really bad,” said Matthew J. Slaughter, Dartmouth College economist.
That’s enough to worry economists whose rosy forecasts like to quote White House aides.
“Russia will cut off their oil exports before they get a big price discount,” said Mark Zandi, an economist at Moody’s Analytics. “That will push the economy into recession. Gas prices will skyrocket, returning to record highs of $5 a gallon almost overnight. The economy can’t stomach $5 a gallon, that would be overwhelming.”
For now, however, Treasury officials publicly insist that Putin will not follow through on that threat. They also point out that Europe had been planning 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 bluster and say it won’t sell below the cap price, but the economics of holding oil just don’t make sense,” Treasury Undersecretary Wally Adeyemo said on Friday.