| | | | |  | | By Kate Davidson and Aubree Eliza Weaver | Editor's Note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro. As President Joe Biden wages an economic war against Russia, he's facing difficult tradeoffs in his domestic battle against inflation. White House officials are keenly aware that an energy price shock emanating from Eastern Europe could have ripple effects across the globe, including for U.S. consumers, who are already facing decades-high price pressures. The president in his State of the Union address last week said fighting inflation is his "top priority." And U.S. officials have avoided steps, such as restricting energy payments to Russia, that could push gas prices up further — until now. Secretary of State Antony Blinken said Sunday the U.S. is weighing whether to ban Russian oil imports amid Vladimir Putin's invasion of Ukraine, a move that has growing bipartisan support in Congress. "We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil, while making sure that there is still an appropriate supply of oil on world markets," Blinken said on CNN's "State of the Union." "That's a very active discussion as we speak." Can the U.S. economy withstand such a move? Cecilia Rouse, the chair of Biden's Council of Economic Advisers, said Friday, " We're in a very good position." "We don't import a lot of Russian oil, but we are looking at options that we can take right now if we were to cut the U.S. consumption of Russian energy," she said at a White House press briefing. "But what's really most important is we — that we maintain a steady supply of global energy." Blinken's remarks came a day after Ukraine President Volodymyr Zelenskyy pleaded with members of Congress to do more to kneecap Russia's economy and help Ukraine.
| | | | HAPPENING TUESDAY, INTERNATIONAL WOMEN'S DAY, AN IMPORTANT CONVERSATION ON THE WOMEN IN AFGHANISTAN: Join Women Rule editor Elizabeth Ralph for a panel discussion on the future for Afghan women. Guests include Hawa Haidari, a member of the Female Tactical Platoon; Cindy McCain, U.S. ambassador to the United Nations Agencies for Food and Agriculture; Roya Rahmani, Afghanistan's first female ambassador to the U.S.; and Sen. Jeanne Shaheen (D-N.H.). Learn how female Afghan veterans are planning their futures, what the women still in Afghanistan face, and what the U.S. can do to help. REGISTER HERE. | | | | | Meanwhile, U.S. crude oil topped $130 a barrel at one point on the news of a possible Western oil ban. Oleg Ustenko, one of Zelenskyy's top economic advisers, is out with an op-ed in the L.A. Times this morning with MIT Professor Simon Johnson on how to structure a U.S. oil embargo so it would do maximum damage to the Russian economy but only impose minor costs on the U.S. and its allies. "Russian oil and gas are now the moral equivalent of 'blood diamonds,'" they write. "Western energy purchases can be stopped if the U.S. steps up." They lay out three options:
- The U.S. could ban Russian oil but do nothing else. In this case, Johnson and Ustenko argue, U.S. oil companies can easily switch to other suppliers, the world price for crude oil wouldn't change and Russia could find new buyers. This would be symbolic, but basically meaningless, they say.
- The U.S. could ban crude purchases from Russia and use secondary sanctions to prohibit any financial firm doing business in dollars from facilitating purchases of Russian oil anywhere in the world. Russia may still be able to sell, but would likely be doing so at a heavy discount — its oil revenue could fall by as much as half, they estimate. Meanwhile, the U.S. could seek to offset disruption by encouraging other OPEC countries to increase production — something U.S. officials have already said they are doing. That could lean against any potential price increases.
- The third option, and the one they endorse, would be to ban imports, impose secondary sanctions and encourage Europeans to buy less gas. In this scenario, Russian oil and gas revenue would decline. "Payments for oil could barely cover production costs, which means no revenue for the government budget," they write. "Daily payments for gas should also be pushed as low as possible. As the weather warms in Europe, aiming for zero Russian gas purchases becomes realistic."
The financial sanctions the U.S. has imposed so far were important, Johnson told MM, in particular cutting off the central bank's access to its reserves. But he argues: "The reason you remove the buffer of reserves is so that they can't buffer shocks. But the shock that they've had since the beginning of the invasion is that oil prices have gone up, not down. So it's been a positive shock. What you need to do is impose a negative shock on them." Reducing Russia's oil and gas revenue is the only way to do it, he says. Johnson isn't sanguine about the inflation tradeoffs, but he says, "I think we can deal with it over time, and it's not going to be massively costly. The costs for Urkrainians are irreversible." A key question for the White House: Will voters see the tradeoffs as worth it? White House Press Secretary Jen Psaki in a tweet thread Sunday night made the case that U.S. oil and natural gas production is going up, but acknowledged "Russia's actions still leave our consumers vulnerable," and said the global energy market "will always be vulnerable to bad actors." Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, says: "It is notable to me that there is a lot of bipartisan support behind this policy of punishing Russia, punishing the Russian economy. The American public responding to the costs at the pump though – it's not clear to me how they'll respond," she said. IT'S MONDAY — Speaking of inflation, we've got another big data point coming up Thursday when the Labor Department releases its consumer price index report for February. Economists expect the report to show annual inflation accelerated to 7.8 percent, while headline prices from the previous month ticked up slightly to 0.7 percent. Have a story idea, tip or other feedback? Email us at kdavidson@politico.com, aweaver@politico.com, or find us on Twitter @katedavidson or @aubreeeweaver.
| | | | A message from ExxonMobil: ExxonMobil is committed to playing a leading role in the energy transition. We're advancing climate solutions, including carbon capture and storage, hydrogen and advanced biofuels. And, by 2050, we aim to achieve net-zero emissions (Scope 1 and 2) from our operated assets. We're working with partners to achieve similar results from non-operated assets, and advocating for supportive policies to accelerate the deployment of lower-emission technologies needed to support a net-zero future. Learn more at ExxonMobil.com/Solutions | | | | | | Treasury Under Secretary Nellie Liang, Acting Comptroller Michael Hsu and CFTC Chair Rostin Behnam speak at the Institute of International Bankers Washington conference Monday … House Financial Services Ranking Member Patrick McHenry speaks at the American Bankers Association conference Tuesday … House Financial Services hearing on inflation Tuesday … Senate Banking hearing on mandatory arbitration Tuesday … Public hearing on U.S. Bancorp's proposed acquisition of MUFG Union Bank Tuesday … JOLTS data released Wednesday … Sen. Jon Tester (D-Mont.) and OCC's Hsu speak at ABA conference Wednesday … Peterson Institute for International Economics virtual discussion on central bank digital currencies Wednesday … February consumer price data released Thursday … SEC virtual meeting Thursday … University of Michigan consumer sentiment data released Friday. FIRST IN MM: HOW FISCAL POLICY CAN HELP SOLVE DEMOCRATS' INFLATION CONUNDRUM — Third Way is out with a new report this mornin outlining a dozen practical ways that fiscal policymakers can help rein in inflation by focusing on supply chain issues. Among the key areas where they could be doing more, the report argues: Addressing labor supply issues, tackling bottlenecks and helping businesses grow and deal with their costs. Their ideas include funding short-term incentives for truckers and warehouse workers, such as safe and more accessible parking, and reducing occupational licensing rules to help make it easier for people to work. YOU'VE GOT MAIL: IRS BOOSTS HIRING IN BID TO SHRINK BACKLOG — Our Aaron Lorenzo: "The IRS plans to hire 10,000 new full-time workers to play a direct role in helping the agency reduce its backlog of millions of unprocessed tax returns and other mail from individual and business taxpayers, according to the leader of the union that represents most of the IRS workforce."
| | | COMMERCE FURTHER RESTRICTS EXPORTS TO RUSSIA'S OIL SECTOR — Our Doug Palmer: "The U.S. Commerce Department on Friday issued two new regulations to further restrict exports of commodities, software and technology to Russia's oil refining sector and 91 entities that support Russian military activities." "Russia is one of the world's leading producers of oil products and these restrictions will limit its ability to raise revenue from the sale of refined products, including gasoline, that it can use to support its military efforts," the Commerce Department said in a statement. The text of the rule is available here. JPMORGAN ANALYSTS TOUT RUSSIAN COMPANY DEBT 'RECOVERY PLAY' — Reuters: "Strategists at JPMorgan Chase & Co are recommending clients boost positions in some Russia-linked corporate debt, even as the U.S. and allies tighten sanctions to restrict investments in some of the country's assets. The recommendations demonstrate how Wall Street continues to capitalize on a buying opportunity arising from Russia's invasion of Ukraine. Sanctions on Russia haven't outright banned trading in assets like company debt tied to the country." MASTERCARD, VISA SUSPEND OPERATIONS IN RUSSIA AFTER INVASION — AP's Stan Choe: "Mastercard and Visa are suspending their operations in Russia , the companies said Saturday, in the latest blow to the country's financial system after its invasion of Ukraine. Mastercard said cards issued by Russian banks will no longer be supported by its network and any Mastercard issued outside the country will not work at Russian stores or ATMs. 'We don't take this decision lightly,' Mastercard said in a statement, adding that it made the move after discussions with customers, partners and governments."
| | | | A message from ExxonMobil:   | | | | | | GOTTHEIMER, HOLLINGSWORTH CALL ON TREASURY TO EXAMINE TETHER — Our Sam Sutton: "Lawmakers are pressing the U.S. Treasury Department for more information about stablecoin issuer Tether's reserves , including the company's exposure to Chinese commercial paper. Reps. Josh Gottheimer (D-N.J.) and Trey Hollingsworth (R-Ind.) are asking that Treasury provide details on the assets Tether has used to back roughly $80 billion of its U.S. dollar tether token, which trades as USDT."
| | | MARKET VOLATILITY IS ONLY CERTAINTY FOR TRADERS AS WAR RAGES ON — Bloomberg's Rachel Evans and Payne Lubbers: "As the week kicks off in Asia on Monday, the only certainty for traders is that they're in for another volatile stretch , with Russia's war in Ukraine upending financial markets. The U.S. dollar will be in focus, after appetite for havens helped lift a gauge of the currency to its highest since July 2020 on Friday, and with the U.S. Secretary of State saying the Biden administration and its allies are discussing an embargo of Russian oil." DOLLAR STRENGTH BUILDS — WSJ's Caitlin McCabe: "Escalating conflict between Russia and Ukraine has sent investors dashing to safer assets , propelling the dollar to its highest level since the coronavirus-induced volatility of two years ago. The ICE U.S. Dollar index, which tracks the currency against a basket of others, surged as high as 98.92 this past week, its highest level since May 2020."
| | | | STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today. | | | | | | | | BOOK CLUB: NEW BERNANKE TOME COMING IN MAY — Former Fed Chairman Ben Bernanke is set to release a new book this spring, "21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19," looking at the evolution of the Fed's policy tools. The book, set to publish May 17, is available for pre-order on Amazon. Zelle is now by far the country's most widely used money transfer service. It's also a favorite of fraudsters. — NYT's Stacy Cowley and Lananh Nguyen Robert Smith, the billionaire chief executive of private-equity firm Vista Equity Partners, played a larger role than previously known in the $2 billion alleged tax evasion of his former business partner, recently filed court documents show. — WSJ's Mark Maremont and Miriam Gottfried China on Saturday cut its annual economic growth target to its lowest level in decades as Beijing struggles to reverse a slump at a time when Russia's war on Ukraine is pushing up oil prices and roiling the global economy. — AP's Joe McDonald
| | | | A message from ExxonMobil: ExxonMobil is committed to playing a leading role in the energy transition and advancing climate solutions while continuing to power economies around the world. We're investing $15 billion in lower-emission technologies, including carbon capture and storage, hydrogen and advanced biofuels, through 2027. By 2050, we aim to achieve net-zero emissions (Scope 1 and 2) from our operated assets, backed by a comprehensive approach with detailed emission-reduction roadmaps. And where we are not the operator, we're also working with partners to achieve similar results and help them reach their emission reduction goals. We're advocating for supportive policies, such as a price on carbon, which can help reduce costs and drive new markets to accelerate deployment of key lower-emission technologies needed to support a net-zero future. Learn more about our plans and how our strategy is resilient under the International Energy Agency's Net Zero Emissions by 2050 scenario at ExxonMobil.com/Solutions | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
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