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Biggest stock slide on Wall Street since ’20 as oil surges

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By Stan Choe And Alex Veiga in New York

NEW YORK (AP) — Wall Street had its biggest drop in more than a year Monday as another leap for oil prices threatened to squeeze inflation’s grip on the global economy.

The S&P 500 fell 3%, its biggest decline in 16 months, after a barrel of U.S. oil surged to $130 overnight on the possibility the U.S. could bar imports from Russia. Stocks around the world also fell earlier in the day, taking their cue from oil’s movements.

The benchmark S&P 500 fell 122.78 points to 4,201.09. The Dow Jones Industrial Average fell 797.42 points, or 2.4%, to 32,817.38.

The Nasdaq composite slid 482.48 points, or 3.6%, to 12,830.96. The tech-heavy index is now 20.1% below its record set in November. Such a decline means the index is now in what Wall Street calls a bear market. The S&P 500 is down a more modest 12.4% from the peak it set in early January.

Gold and a measure of nervousness on Wall Street also rose, though not by quite as much as when oil prices hit their peak. The price of gold briefly rose above $2,000 an ounce before settling at $1,995.90, up 1.5%.

“This could be something that drags on for a while as the tensions in Ukraine persist, as oil prices remain elevated,” said Sam Stovall, chief investment strategist at CFRA. “The higher and longer oil prices stay elevated, the greater the eroding impact that they will have on economic growth.”

Oil prices have soared recently on worries that Russia’s invasion of Ukraine will upend already tight supplies. Russia is one of the world’s largest energy producers, and oil prices were already high before the attack because the global economy is demanding more fuel following its coronavirus-caused shutdown.

U.S. House Speaker Nancy Pelosi said in a letter to her colleagues on Sunday that “the House is currently exploring strong legislation” to further isolate Russia because of its attack on Ukraine. That could include a ban on imports of Russian oil and energy products, she said.

It’s a major step that the U.S. government has not yet taken, despite a long list of moves to punish Russia, as the White House has said it hopes to limit disruptions to oil markets. It wants to limit price jumps at the gasoline pump.

Reports also said U.S. officials may be considering easing sanctions against Venezuela. That potentially could free up more crude oil and ease concerns about reduced supplies from Russia.

A gallon of regular already costs an average of $4.065 across the country after breaching the $4 barrier on Sunday for the first time since 2008. A month ago, a gallon averaged $3.441, according to AAA.

A barrel of U.S. crude oil settled at $119.40 per barrel, up 3.2%, after earlier touching $130.50. Brent crude, the international standard, settled at $123.21 per barrel, up 4.3%, after earlier topping $139.

Meanwhile, smaller company stocks also fell sharply. The Russell 2000 index fell 49.57 points, or 2.5%, to 1,951.33.

Markets worldwide have swung wildly recently on worries about how high prices for oil, wheat and other commodities produced in the region will go because of Russia’s invasion, inflaming the world’s already high inflation. In the United States, prices for consumers jumped last month from their year-ago level at the fastest rate in four decades.

The conflict in Ukraine also threatens the food supply in some regions, including Europe, Africa and Asia, which rely on the vast, fertile farmlands of the Black Sea region, known as the “breadbasket of the world.”

The war puts extra pressure on central banks around the world, with the Federal Reserve on course to raise interest rates later this month for the first time since 2018. Higher rates slow the economy, which hopefully will help rein in high inflation. But if the Fed raises rates too high, it risks forcing the economy into a recession.

“Their reaction to geopolitics can’t really be measured, so there’s uncertainty around that,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.

Some investors have seen the war in Ukraine as potentially pushing the Fed to go easier on rate increases. Investors love low rates because they tend to boost prices for stocks and all kinds of markets.

But that may not necessarily be the case this time, Goldman Sachs economists wrote in a report. With prices for oil, wheat and other commodities potentially rising even more, the threat is higher for a sustained, high inflation to settle on the economy. That could flip the Fed’s traditional playbook.

“After several decades in which economic, financial, or political shocks invariably caused interest rates to fall, markets may have to re-learn that the opposite can also be true,” Goldman Sachs economist Jan Hatzius wrote.

Beyond sanctions brought on Russia by governments because of its invasion of Ukraine, companies are also levying their own punishments. The list of companies exiting Russia has grown to include Mastercard, Visa and American Express, as well as Netflix.

The value of the Russian ruble continued to slide amid all the financial pressure, falling 12% to 0.7 cents.

Treasury yields climbed. The 10-year yield rose to 1.78% from 1.72%.

___

AP Business Writers Damian J. Troise and Yuri Kageyama contributed. Veiga reported from Los Angeles.

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Conservatives warn Canada is fuelling Putin’s war machine by returning turbines

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OTTAWA — Conservative MPs have accused the Liberal government of fuelling Vladimir Putin’s war machine by agreeing to allow pipeline equipment in Montreal for repairs to be returned to a Russian energy giant.

Tories claimed the government’s decision to return the turbine means more funds will be pumped into Gazprom, which is controlled by the Russian state, and in turn will allow the country’s president to buy more arms to attack Ukraine.

The accusations were made during heated exchanges on Thursday at a meeting of a parliamentary committee where Foreign Affairs Minister Melanie Joly and Natural Resources Minister Jonathan Wilkinson gave evidence about Canada’s decision to return the equipment.

Last month, the Liberal government drew criticism for granting Siemens Energy an exemption on sanctions against Russia and allowing the turbine to return to Germany and then eventually to Russia for installation in the pipeline.

Siemens Energy was granted a permit to import, repair and return up to six turbines for Gazprom. Kyiv has accused Canada of setting a dangerous precedent, arguing the exemptions undermine the sanctions.

Conservative MP James Bezan told the committee that Canada had been “outmanoeuvred by the Russian Federation.”

He said it seemed that Putin was playing chess while Canada was playing checkers, and accused the Liberal government of “enabling” Gazprom, which would give Russia more funds to buy weapons to kill Ukrainians.

“It’s embarrassing that the government of Canada capitulated,” he said.

Alexandra Chyczij, executive director of the Ukrainian Canadian Congress, told the committee that the decision to return the turbines was “the thin edge of the wedge” and the first waiver of sanctions since Russia’s invasion of Ukraine in February.

She warned that “appeasement of dictators” never works and just “emboldens them.”

But Joly denied that Canada was capitulating and insisted it was rather calling Putin’s bluff. She said returning the turbine denied Putin a pretext for reducing the flow of natural gas through the Nord Stream 1 pipeline that runs to Germany from Russia.

Natural Resources Minister Jonathan Wilkinson echoed this sentiment and said revealing Putin’s dishonesty had always been a reason for the decision.

But Tory MP Marty Morantz noted that the government didn’t use this language when the decision was first made. He questioned when it decided the rationale was about calling Putin’s bluff, rather than about securing gas supplies to Europe.

The Conservatives also questioned whether the alternative of funnelling gas through pipelines through Ukraine had been actively explored by the government.

Wilkinson said the option had been looked at in detail but was not seen as viable, not least because the Ukraine pipelines were through a war zone. He added that Canada was working closely with European nations to help wean them off their reliance on Russian energy to heat their homes, including by planning to supply natural gas from Canada.

Both Wilkinson and Joly said the decision was taken after wide consultations, including with Ukraine, and was a difficult one.

Wilkinson said the intention of sanctions imposed after Russia’s invasion of Ukraine is to punish Putin and not to punish Canada’s allies in Europe.

Joly said the government was firmly committed to continuing sanctions to squeeze Putin and was planning new rounds every two weeks.

Russia has proven to the world that it cannot be a reliable economic partner, she said.

Ukraine’s ambassador to Canada, Yulia Kovaliv, was expected to make clear her country’s disappointment with the decision in an appearance before the committee later Thursday.

On Wednesday, Joly and German Foreign Minister Annalena Baerbock insisted at a joint appearance in Montreal that it was necessary to return the turbine.

Since the equipment arrived in Germany, Russia has reduced the pipeline’s flow to 20 per cent of capacity, which the ministers said shows Putin is using energy as a weapon of war.

The turbine remains in Germany, with Kremlin spokesman Dmitry Peskov arguing that Gazprom needs documents from Siemens Energy proving that the equipment isn’t subject to western sanctions before it can be returned to Russia.

This report by The Canadian Press was first published Aug. 4, 2022.

Marie Woolf, The Canadian Press

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Ukraine’s ambassador to tell MPs Canada must reverse Russian turbine decision

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OTTAWA — Ukraine’s ambassador to Canada will today make clear her country’s disappointment over Canada’s decision to allow pipeline equipment that was in Montreal for repairs to be returned to a state-controlled energy giant in Russia despite war-related sanctions.

Yulia Kovaliv is to appear before a committee of MPs looking into Ottawa’s decision to allow a turbine to be released to Gazprom, which Canada has sanctioned over Russia’s invasion of Ukraine, for use in the Nord Stream 1 pipeline supplying Germany with natural gas.

Last month, the Liberal government drew criticism for granting Siemens Energy an exemption on sanctions against Russia and allowing the turbine to return to Germany and then eventually to Russia for installation in the pipeline.

Siemens Energy was granted a permit to import, repair and return up to six turbines for Gazprom and the Ukrainian Embassy says Kovaliv will renew calls for Ottawa to revoke the decision.

Kyiv has accused Canada of setting a dangerous precedent, arguing the exemptions undermine sanctions put on Russia in response to its invasion of Ukraine.

Foreign Affairs Minister Mélanie Joly and Natural Resources Minister Jonathan Wilkinson are also to appear before the House of Commons foreign affairs committee today, and Liberal chair Ali Ehsassi says it is important for Canadians to hear how the decision was made.

\On Wednesday, Joly and German Foreign Minister Annalena Baerbock both insisted the return of the turbines used in the Russian pipeline was necessary.

But they also said the fact that the turbine remains in Germany after Canada allowed its release — and that Russia has since reduced natural gas supplies to Germany to 20 per cent — reveals the level of dishonesty from President Vladimir Putin.

Russia had cited the delayed return of the equipment as a reason for reducing the flow of natural gas through the pipeline that runs to Germany from Russia.

“We called his bluff,” Joly said in Montreal on Wednesday in a joint news conference with Baerbock. “It is now clear that Putin is weaponizing energy flows to Europe.”

Ehsassi said Thursday’s meeting of the foreign affairs committee would help establish “the diplomatic representations that were made” around the decision.

Germany’s ambassador to Canada, Sabine Sparwasser, is also expected to appear before the committee, alongside the European Union’s ambassador to Canada, Melita Gabrič.

This report by The Canadian Press was first published Aug. 4, 2022.

Marie Woolf, The Canadian Press

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