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U.S. President Donald Trump is imposing sanctions on Russia’s two biggest oil companies to force Vladimir Putin to the negotiating table. Whether this works to end the war in Ukraine remains to be seen. It is certainly another big blow to an economy already under strain from years of war.
Oil and gas revenues are the biggest contributor to Putin’s war chest, but the immediate impact is likely to be limited because Moscow taxes oil output, not exports. The sanctions could force Russia to further discount its oil on world markets to make it more palatable to customers worried about U.S. sanctions, but that financial hit could in turn be mitigated if global oil prices rise. We certainly saw a jump in the wake of the U.S. announcement. Industry sources have told Reuters that Indian refiners are poised to sharply cut imports of Russian oil to comply with the new U.S. sanctions, and Chinese state oil majors have suspended purchases of seaborne Russian oil at least in the short-term. Most Chinese imports, however, come from independent refiners.
Speaking of China, hopes for a summit between President Xi Jinping and Trump are dimming as tensions spike. Reuters is reporting that the Trump administration is considering a plan to curb a dizzying array of software-powered exports to China, from laptops to jet engines, to retaliate against Beijing's latest round of rare earth export restrictions.
Trump has said he continues to plan on meeting Xi in South Korea later this month, on the sidelines of the Asia-Pacific Economic Cooperation gathering. But even if the talks happen, experts say each side's belief that it has the upper hand makes a narrow deal on a few issues the most likely outcome.
As trade tensions with the United States bubble away, China’s Communist Party elite wraps up a four-day conclave in which it finalized the country’s next five-year plan. A push for self-reliance on technology seems to be the focus although the full plan won’t be released until March. You can hear all about the secretive process behind the five-year plans and how they influence the global economy on this week’s Reuters Econ World podcast. Listen here.
Sticking with Asia, the new junior party in Japan's ruling coalition is likely to give Prime Minister Sanae Takaichi the green light she needs for a big spending package, but will stop short of supporting a revival of “Abenomics”-style fiscal and monetary policies.
Takaichi is known to be a fan of the mix of big fiscal spending and bold monetary easing deployed by former premier Shinzo Abe to pull Japan out of prolonged deflation. But with inflation and rising import costs from a weak yen now the bigger problem for Japan, any spending package will not directly be aimed at stimulating demand, analysts say.
The biggest difference from the Abenomics of a decade ago could be on the monetary policy front, with the Bank of Japan already on course to increase still-low interest rates.
Over in Argentina, President Javier Milei’s coalition needs to retain enough seats in this weekend’s midterm election to ensure his presidential veto, his fiscal agenda and potentially U.S. support for the peso currency. President Trump has pledged a possible $40 billion bailout for Argentina but he has threatened to pull his support if Milei’s party underperforms. U.S. support, however, is seen as merely buying time for the peso. Analysts expect its currency band will be widened after the election to allow it to weaken.
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