The Russian government is making as much money with energy exports as before the invasion. Meanwhile, inflation is rising globally, increasing political pressure on heads of state such as US President Joe Biden, British Prime Minister Boris Johnson and French President Emmanuel Macron.
“The goal here is to starve Russia, to starve Putin from its main source of cash, and to force him to lower the price of Russian oil to help reduce the impact of Putin’s war on the bomb.” , a senior US administration official told CNN.
Why it is necessary: European customers have reduced imports from Russia even before the partial embargo on the bloc comes into force. But an increase in exports to Asia has helped offset much of these losses. China, taking advantage of huge price rebates, first imported 2 million barrels of Russian oil a day last month. Imports from India also rose, to around 900,000 barrels a day in May.
According to the International Energy Agency, revenues from Russian oil exports rose by $ 1.7 billion in May to about $ 20 billion. This is well above the 2021 average of about $ 15 billion.
The United States could punish countries that continue to do business with Russia. But that would cause more chaos in oil markets, something leaders are desperate to avoid, as gasoline prices remain close to all-time highs.
If China and India were to find substitutes for Russian crude, the price of oil could easily exceed $ 200 a barrel, Darwei Kung, a commodity portfolio manager at DWS, told me. It currently trades above $ 112 a barrel.
With price caps, theoretically Russian oil barrels could still enter the world market, thus avoiding a new supply crisis, but Moscow could not continue to reap huge profits.
The Biden administration has been pushing for this option in recent days, and German officials have indicated their willingness to discuss it. But the key details remain murky.
What is missing: how, when and how much could be limited the price of Russian oil is yet to be seen. Officials said the precise mechanism for reaching the limit was still being worked out. It would also need broad international support to be effective.
One method could be to prevent companies based in G7 countries from offering insurance for oil cargoes if buyers pay above a certain price.
Still, Kung warned that adding complexity to energy markets could increase friction and hamper transactions, raising prices to what it would otherwise be.
“The more complicated the system, the more likely there are challenges,” Kung said. “[The] Market system works because in a way it is very simple. It’s very efficient. “
Shares are rising as investors reduce Fed distress
The stock market has been boosted this year by what investors think the Federal Reserve will do next and whether they believe the central bank will be able to control inflation quickly.
As the second quarter draws to a close, some optimism is advancing. The S&P 500 rebounded sharply on Friday, reaching its biggest one-day gain percentage in more than two years and breaking a three-week losing streak. The index rises again on Monday in pre-market trading.
The jump came after the University of Michigan’s final consumer sentiment reading was published in June, which fell to an all-time low.
But there was some good news. Long-term inflation expectations fell from a mid-month reading of 3.3% to 3.1%, a slight improvement.
Federal Reserve Chairman Jerome Powell had said the June initial reading was “attractive.”
That could mean the Fed doesn’t need to raise interest rates three-quarters of a percentage point higher at its next meeting. A half-percentage point rise would still be aggressive, but it would not be so seismic.
However, much will depend on the upcoming data. The Fed’s preferred measure of inflation comes Thursday. If it is higher than economists predict, this could shake up the calculation again.
What does it mean for the annular economy Roe v
The decision of the United States Supreme Court to revoke Roe v. Wade is sending waves of political shock across the country as politicians and activists plan their next steps and protesters take to the streets. It may not seem like a story to journalists covering the economy and markets. But ending the constitutional right to abortion will have economic consequences, reports my CNN Business colleague Anneken Tappe.
Families who are not prepared to raise a child could face financial hardship, while mothers forced to give birth could struggle to access higher education or rise in the socioeconomic scale. This would affect labor and economic output, and could increase the need for government support, according to economists.
“This decision will cause immediate economic pain in 26 states where a ban on abortion is more likely and where people are already facing lower wages, less power from workers and limited access to health care,” he said. Heidi Shierholz, President of the Progressive Institute of Economic Policy. statement issued Friday. “The fall of Roe will be an additional economic barricade.”
The sentiment was echoed by Treasury Secretary Janet Yellen. Speaking to the Senate, she said restricting women’s reproductive rights would have “very detrimental effects on the economy”.
“Roe v. Wade and access to reproductive health care, including abortion, helped increase labor force participation,” Yellen said. “It allowed many women to finish school. This increased their earning potential. It allowed women to plan and balance their families and careers.”
Until next time
Nike (NKE) reports results after the closure of US markets.
Also today: Durable goods orders for May delivery at 8:30 am ET.
Tomorrow: Investors will review U.S. consumer confidence data for June to see if inflation could make Americans spend less.