WASHINGTON -- Relief at the gas pump coupled with last week's news that businesses continue to hire at a blistering clip have tempered many economists' fears that America is heading into a downturn.
But while President Joe Biden's top aides are celebrating those economic developments, they are also worried the economy could be in for another serious shock later this year, one that could send the country into a debilitating recession.
White House officials fear a new round of European penalties aimed at curbing the flow of Russian oil by year-end could send energy prices soaring anew, slamming already beleaguered consumers and plunging the United States and other economies into a severe contraction. That chain of events could exacerbate what is already a severe food crisis plaguing countries across the world.
To prevent that outcome, U.S. officials have latched onto a never-before-tried plan aimed at depressing global oil prices -- one that would complement European sanctions and allow critical flows of Russian crude onto global markets to continue, but at a steeply discounted price.
Europe, which continues to guzzle more than 2 million barrels of Russian oil each day, is set to enact a ban on those imports at the end of the year, along with other steps meant to complicate Russia's efforts to export fuel globally. While Biden pushed Europe to cut off Russian oil as punishment for the country's invasion of Ukraine, some forecasters, along with top economic aides to the president, now fear that such policies could result in huge quantities of Russian oil, which accounts for just less than one-tenth of the world's supply, suddenly taken off the global market.
Analysts have calculated that such a depletion in supply could send oil prices soaring to $200 per barrel or more, translating to Americans paying $7 a gallon for gasoline. Global growth could slam into reverse as consumers and businesses pull back spending in response to higher fuel prices and as central banks, which are already raising interest rates in an effort to tame inflation, are forced to make borrowing costs even more expensive.
The potential for another oil shock to puncture the global economy has driven the administration's attempts to persuade government and business leaders around the world to sign on to a global price cap on Russian oil.
It is a novel and untested effort to force Russia to sell its oil to the world at a steep discount. Administration officials and Biden say the goal is twofold: to starve Moscow's oil-rich war machine of funding and to relieve pressure on energy consumers around the world who are facing rising fuel prices.
To transport its oil to market, Russia draws on financing, ships and, crucially, insurance from Britain, Europe and the United States. The European penalties, as currently constructed, would not only cut Russia off from most of the European oil market but also from those other Western supports for its shipments. If strictly enforced, those measures could leave Moscow with no means of transporting its oil, at least temporarily.
The Biden administration's proposal would not affect the European ban, but it would ease some of the other restrictions, but only if the transported Russian oil is sold for no more than a price set by the United States and its allies. That would allow Moscow to continue moving oil to the rest of the world. The oil now flowing to France or Germany would go elsewhere, Central America, Africa or China and India, and Russia would have to sell it at a discount.
Some economists and oil industry experts are skeptical that the plan would work, either as a way to reduce revenues for the Kremlin or to push down prices at the pump. They warn the plan could mostly enrich oil refiners and could be ripe for evasion by Russia and its allies. Moscow could refuse to sell at the capped price.
But even some skeptics say that the price cap could, if nothing else, keep enough Russian oil pumping to avoid a recession-triggering price spike.
Administration officials say privately that there are signs in oil markets that even in its infant stages, the cap proposal is already helping reassure traders that the world could avoid abruptly losing millions of barrels of Russian oil per day at the year's end.
Other administration officials have pressed the case for the cap in trans-Atlantic video calls and in-person meetings across European capitals like Brussels and London. They are stressing recession risks in talks with other countries, private insurers and a host of other officials over how to structure and carry out the price-cap plan, which leaders of the major industrialized nations, known as the Group of 7, endorsed in principle last week at a meeting in the German Alps.
"We definitely want to be mindful of the downside risk and the fact that people's costs are too high" at the pump, said Wally Adeyemo, the deputy Treasury secretary. "We think one of the most effective things we can do to deal with the concerns we have is implementing the price cap -- because it reduces the risk of global downturn, and it also reduces the price of one of the most important things for the global economy going forward."
Researchers at High Frequency Economics estimated in a note to clients last week that recessions are already beginning across Europe, Britain and Japan.
Biden's closest economic aides insist that the U.S. economy has not yet hit recession, even as it struggles through what could be its second consecutive quarter of negative growth. Their case has been buoyed by the continued strength of the labor market, which added 372,000 jobs in June and has not yet slowed as many forecasters had predicted.
Administration officials also see reasons for optimism in the dip in global oil prices last week, which should translate into meaningful relief in the weeks to come from the $5 a gallon prices that drivers have been paying in many states this summer. The average national price per gallon fell to just under $4.70 by the end of last week, down about 30 cents from its summer high.
The surge in gas prices earlier this year was a direct consequence of the Russian invasion and the West's response to it, led by Biden, who moved swiftly to ban imports of Russian oil to the United States and coordinate similar bans among allies.
In some ways, the price-cap proposal is an acknowledgment that those penalties have not worked as intended; Russia has continued to sell oil at elevated prices -- even accounting for the discounts it is giving to buyers like India and China, which did not join in the oil sanctions -- while Western drivers pay a premium.
Some experts doubt the plan will work, saying it is ripe for evasion and will still provide Russia with plenty of energy revenue. There is also the chance that a low cap would induce Moscow to refuse to ship any discounted oil, instead paying to cap wells and halt production.
"It's another half-measure idea, as opposed to making the tough decision to actually stop purchasing Russian crude and using secondary sanctions," said Marshall Billingslea, who was the assistant Treasury secretary for terrorist financing in the Trump administration.
Steve Cicala, a Tufts University economist who studies energy and environmental regulation, said the price cap could dent Russian revenues but is unlikely to affect global oil prices. Instead, he said, refineries that buy Russian oil at a discount will sell that oil at a much higher price set by the global market, pocketing a windfall in the process.
"There's a misconception that if we implement the price cap, then the price that people will pay for gasoline is going to fall," Cicala said. "That's not the case."
But, Cicala added, the cap could well succeed at keeping Russian oil flowing -- thus preventing the sort of price spike that administration officials are so worried about.
"It's ultimately keeping the oil coming out of the ground," he said, "that avoids the global recession."
SUPPORT FOR CAP
Treasury Secretary Janet Yellen plans to push for more support for the cap when she meets with fellow finance ministers from the leading rich and developing nations, known as the Group of 20 -- including Russia -- in Asia this week. The U.S. delegation will have no contact with the Russians, a Treasury official said.
The meetings will take place on Indonesia's resort island of Bali, and she is making additional stops in Tokyo and Seoul, South Korea. During the July 12-19 trip, Yellen will notably avoid visiting China, although she did hold a call with China's vice premier on Monday.
Yellen has been a critic of China's economic relationship with Russia -- urging China to use its "special relationship with Russia" to persuade Russia to end the war in Ukraine.
Unlike the Group of Seven finance leader meetings in April, the G-20 will involve participant countries that are not united in taking action in opposition to the war in Ukraine. China, India, South Africa and Brazil have largely resisted signing on to efforts by the U.S. and its allies to punish Russia for its invasion. Russia is expected to participate as well.
Information for this article was contributed by Jim Tankersley of The New York Times and Fatima Hussein of The Associated Press.