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World

Argentine Court Sentences Vice President Cristina Kirchner to Six Years in Prison

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BUENOS AIRES—A federal court on Tuesday convicted Vice President

Cristina Kirchner

of fraud charges and sentenced her to six years in prison for embezzling money through public-construction contracts, a blow for a leftist government grappling with soaring inflation and one of the worst economic crises in two decades.

A three-judge panel said Mrs. Kirchner, along with several other former aides, would be permanently banned from holding public office, capping a long-running graft case against Argentina’s most prominent and polarizing politician. Mrs. Kirchner served as president for two terms from 2007 to 2015 before becoming the first vice president in the country to be tried and convicted on graft charges while in office.

Mrs. Kirchner, a driving force in the populist Kirchnerismo movement for two decades, denied the accusations, saying she is the victim of political persecution. She is expected to appeal the judgment, a process that Argentine legal experts say could drag on for years and hamper prosecutors’ efforts to ban her from holding office.

She might also never serve jail time because she enjoys immunity from prosecution. In addition, Argentine law prohibits prison time for people over 70 years old. Mrs. Kirchner turns 70 in February.

“This sentencing, my compatriots, is not one based on the laws of the constitution,” Mrs. Kirchner said in a video address just after the court’s decision. “This is a parallel state, a judicial mafia.”

Though Mrs. Kirchner had in the past left open another possible run for the presidency, she said on Tuesday following the sentence: “I will not be a candidate.”

“I won’t be a candidate for anything, not president, not senator,” said Mrs. Kirchner, who has also been a senator since 2019 and is considered the most dominant leader of her left-leaning political movement. “My name will not be on any ballot.”

The court also found eight others guilty of defrauding the state, sentencing them from three to six years in prison while acquitting four others. The case centered on the granting of public contracts to a construction mogul, Lázaro Báez, who was close to the Kirchner family.

As a powerful figure in President Alberto Fernández’s political coalition, Mrs. Kirchner’s legal troubles are likely to weigh on an unpopular government facing what economists call a challenging economic environment.

Mr. Fernández and his economy minister, Sergio Massa, agreed to austerity measures and cutting energy subsidies earlier this year as part of a deal with the International Monetary Fund to refinance $44 billion in debt to avoid a default. Mrs. Kirchner has opposed efforts to reduce the budget deficit, clashing with the president, while backing the printing of pesos to fund generous social programs.

An opposer of Argentine Vice President Cristina Kirchner is seen in Buenos Aires last month.



Photo:

Luis Robayo/Agence France-Presse/Getty Images

Argentina’s poverty rate has risen, jumping from 28% in 2017 to 43% this year, according to a study by the Catholic University of Argentina. Annual inflation hit 88% in October, the government statistics agency said, tops in the Group of 20 and the highest pace of consumer price increases since Argentina faced hyperinflation in the early 1990s. And economists expect inflation to hit 100% by year’s end. The peso, meanwhile, has weakened sharply against the dollar this year, raising concerns about a painful devaluation amid low reserves at the Central Bank.

Mrs. Kirchner and her supporters say the investigation has generated animosity against her, leading to a purportedly failed assassination attempt in September after prosecutors formalized charges against her.

In a puzzling incident, a man thrust a gun in Mrs. Kirchner’s face as she greeted supporters outside her apartment and pulled the trigger. The weapon didn’t discharge, and the vice president was unharmed. A Brazilian man residing in Argentina was arrested immediately after the attack. Authorities haven’t disclosed a motive.

The criminal case against Mrs. Kirchner stems from her time as president, when the government granted highway building contracts to the construction magnate, Mr. Báez, in the southeastern province of Santa Cruz, a stronghold of Kirchnerismo.

Argentine antigraft prosecutors had sought 12 years in prison and a public-office ban, alleging that Mrs. Kirchner used her position to conspire with aides and Mr. Báez to receive kickbacks for fraudulent contracts for projects, some of which were never completed. The alleged conspiracy cost the government nearly $1 billion, prosecutors said.

While the court found Mrs. Kirchner guilty of defrauding the state, it didn’t find her guilty of leading a criminal conspiracy.

Mr. Báez, who is already serving a 12-year sentence on money-laundering charges, had in the past denied the allegations, showing off schools and other projects that he said demonstrated that the contracts issued to him were legitimate.

Mrs. Kirchner’s conviction is likely to further erode support for Mr. Fernández’s government, which has an approval rating of about 18%, according to Mariel Fornoni, director of Management and Fit, an Argentine political consultancy. In public-opinion surveys, corruption is topped only by inflation as citizens’ primary concern, said Ms. Fornoni.

In recent months, Mrs. Kirchner had criticized some of the Fernández administration’s efforts to reduce subsidies on gas and other utilities. Her comments, Ms. Fornoni said, had heightened speculation she would seek public office in elections next year, when Mr. Fernández’s term ends.

Mrs. Kirchner “has high levels of rejection” in polls, Ms. Fornoni said. But she said that the vice president also has had a base of strong supporters hovering at 25%, which until her announcement on Tuesday made her the leading figure in the ruling Peronist Party.

“It’s going to be hard to find anyone else to generate confidence in Argentina,” Ms. Fornoni said.

Mrs. Kirchner and her husband, Néstor Kirchner, president from 2003 to 2007, presided over the country during a tide of left-leaning governments across Latin America that used revenue from high commodity prices to ramp up public spending and forged alliances to counter the U.S. influence in the region.

With leftist governments again emerging in countries around the region, Mrs. Kirchner had a new bevy of allies, some of whom had criticized the investigation in Argentina.

In August, the presidents of México, Colombia and Bolivia joined Argentina in signing a joint statement calling the case against Mrs. Kirchner political persecution. “They’re trying to bury the ideals and values that she represents with the final objective to implant a neoliberal model,” the statement said.

In her comments after Tuesday’s verdict, Mrs. Kirchner cast the conviction as a ruling against the populist system she had furthered in Argentina. “They’re condemning me because they’re condemning a model of economic development and recognition of people’s rights,” she said.

Write to Kejal Vyas at kejal.vyas@wsj.com

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Business

November Employment Report Shows U.S. Economy Added 263,000 Jobs

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The November payrolls gain compared with an upwardly revised 284,000 jobs in October, the Labor Department said Friday. Payrolls grew in leisure and hospitality, healthcare and government. Retailers and transportation-and-warehousing companies cut jobs in a sign of weak holiday hiring.

Average hourly earnings grew 5.1% in November from a year earlier, the department said. Wage growth has remained elevated but roughly stable after a sharp increase earlier in the year.

November job growth was roughly in line with the previous three months, when payrolls grew an average of 282,000 a month. Job growth continues to exceed the 2019 monthly average of 164,000, though gains have slowed from the first half of the year.

The job market has remained resilient this year, with employers still seeking to hire despite an uncertain economic outlook and elevated recession fears. Low unemployment and wage gains have helped fuel consumer spending, the economy’s main engine.

One big question is how long that strength can last as the Federal Reserve aggressively raises interest rates to tame inflation. Some companies in technology, entertainment and real estate are laying off workers, but demand for workers continues to outpace the number of unemployed people looking for work.

Economists are concerned that higher interest rates will trigger more widespread layoffs and a recession in the next year, as has typically occurred during prior episodes of rapid rate rises. They are closely monitoring the pace of hiring for early signs of shifts in labor-market momentum.

“An employer is going to start reducing hiring long before they start letting go of their existing workforce,” said Guy Berger, principal economist at LinkedIn. “That’s the first lever.” 

Rising unemployment could follow, he said, as job seekers have fewer available opportunities. Continuing claims, which reflect the number of people seeking ongoing unemployment benefits, are drifting upward in a sign of labor-market cooling, Mr. Berger said. 

On Wednesday, Federal Reserve Chair

Jerome Powell

indicated the central bank is on track to raise interest rates by a half-percentage point at its next meeting, scaling back from an unprecedented series of four 0.75-point rate rises. Fed officials are hoping higher rates will trigger less competition for workers and slower wage increases, taking some pressure off consumer prices. 

This week, CNN said it was laying off employees and DoorDash Inc. said it would trim its corporate staffing levels by about 1,250. AMC Networks Inc. said in a memo to employees that it plans to lay off about 20% of its U.S. workforce. 

Corporate layoff announcements generally have been concentrated in the technology industry and sectors of the economy sensitive to interest rates such as housing and finance. Other businesses are quickly scooping up laid-off workers as job openings remain well above prepandemic levels, even in sectors such as real estate.

LodeStar Software Solutions, a small software company that helps mortgage lenders accurately disclose fees to consumers, recently posted an opening for a customer-service role, said Jim Paolino, chief executive of the Conshohocken, Pa.-based company.

Mr. Paolino quickly received about 130 résumés for the job, which entails account management. He held screening calls with 10 applicants, eight of whom had lost their jobs at mortgage companies. 

“It’s actually a great time to hire right now,” he said. “There has been an influx of talent in our industry and to the market because a lot of larger companies have done pretty large-scale layoffs.”

Companies are still largely avoiding job cuts because demand for goods and services is solid. Personal spending increased 0.8% from the prior month, the Commerce Department said Thursday. 

Some firms also are hesitant to lay off employees because they found it so difficult to rehire as the economy recovered from the pandemic downturn.

The layoff announcements just keep coming. As interest rates continue to climb and earnings slump, WSJ’s Dion Rabouin explains why we can expect to see a bigger wave of layoffs in the near future. Illustration: Elizabeth Smelov

“Demand restarted, and they couldn’t hire fast enough,” said

Becky Frankiewicz,

president and chief commercial officer of staffing firm

ManpowerGroup.

“There’s still this aftershock of, ‘I want to hold on to the talent that I have.’”

Companies are still offering hiring bonuses to attract talent, but the rationale has shifted some from a year ago. Employers are expecting inflation to come down and bonuses give them more flexibility to dial back compensation than wage increases do, she said. 

“If you still have a talent shortage and you don’t want to lock in at higher wages across all your roles, what do you do? You do bonuses,” Ms. Frankiewicz said.

Wage growth has cooled in recent months but remains above the prepandemic pace.

Still, there are signs that spending could be reaching a limit, with some Americans dipping into savings or taking on credit-card debt to finance purchases. The personal-saving rate was 2.3% in October, its lowest level since 2.1% in July 2005.

David Blake, president of Iowa-based Blue-9 Pet Products, said sales have been roughly flat this year, a shift from previous years when the 10-person manufacturer and seller of dog-training accessories posted double-digit sales growth. 

Pet owners appear to be cutting back on some discretionary purchases as they face higher prices for staples like groceries, he said.

“Whether we’re in a recession or going to have a recession or not, the fact still remains that the inflation out there is having an impact on spending,” said Mr. Blake.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com

Due to slower sales, Mr. Blake held off on hiring new employees this year. He also doesn’t plan to add any next year.

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World

Chevron Gets U.S. License to Pump Oil in Venezuela Again

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WASHINGTON—The U.S. said it would allow

Chevron Corp.

CVX -0.29%

to resume pumping oil from its Venezuelan oil fields after President Nicolás Maduro’s government and an opposition coalition agreed to implement an estimated $3 billion humanitarian relief program and continue dialogue in Mexico City on efforts to hold free and fair elections.

Following the Norwegian-brokered agreement signed in Mexico City, the Biden administration granted a license to Chevron that allows the California-based oil company to return to its oil fields in joint ventures with the Venezuela national oil company, Petróleos de Venezuela SA. The new license, granted by the Treasury Department, permits Chevron to pump Venezuelan oil for the first time in years.

Biden administration officials said the license prohibits PdVSA from receiving profits from Chevron’s oil sales. The officials said the U.S. is prepared to revoke or amend the license, which will be in effect for six months, at any time if Venezuela doesn’t negotiate in good faith.

Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million in the 1990s.



Photo:

Isaac Urrutia/Reuters

“If Maduro again tries to use these negotiations to buy time to further consolidate his criminal dictatorship, the United States and our international partners must snap back the full force of our sanctions,” said Sen.

Robert Menendez

(D., N.J.), the chairman of the Senate Foreign Relations Committee.

The U.S. policy shift could signal an opening for other oil companies to resume their business in Venezuela two years after the Trump administration clamped down on Chevron and other companies’ activities there as part of a maximum-pressure campaign meant to oust the government led by Mr. Maduro. The Treasury Department action didn’t say how non-U.S. oil companies might re-engage with Venezuela.

Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million barrels a day in the 1990s. Some analysts said Venezuela could hit 1 million barrels a day in the medium term, a modest increment reflecting the dilapidated state of the country’s state-led oil industry.

Some Republican lawmakers criticized the Biden administration’s decision to clear the way for Chevron to pump more oil in Venezuela. “The Biden administration should allow American energy producers to unleash DOMESTIC production instead of begging dictators for oil,” Rep. Claudia Tenney (R., N.Y.) wrote on Twitter.

Biden administration officials said the decision to issue the license wasn’t a response to oil prices, which have been a major concern for President Biden and his top advisers in recent months as they seek to tackle inflation. “This is about the regime taking the steps needed to support the restoration of democracy in Venezuela,” one of the officials said.

The Wall Street Journal reported in October that the Biden administration was preparing to scale down sanctions on Venezuela’s regime to allow Chevron to resume pumping oil there.

Jorge Rodriguez led the Venezuelan delegation to the talks in Mexico City, where an agreement was signed.



Photo:

Henry Romero/Reuters

Under the new license, profits from the sale of oil will go toward repaying hundreds of millions of dollars in debt owed to Chevron by PdVSA, administration officials said. The U.S. will require that Chevron report details of its financial operations to ensure transparency, they said.

Chevron spokesman Ray Fohr said the new license allows the company to commercialize the oil currently being produced at its joint-venture assets. He said the company will conduct its business in compliance within the current framework.

The license prohibits Chevron from paying taxes and royalties to the Venezuelan government, which surprised some experts. They had been expecting that direct revenue would encourage PdVSA to reroute oil cargoes away from obscure export channels, mostly to Chinese buyers at a steep discount, which Venezuela has relied on for years to skirt sanctions.

“If this is the case, Maduro doesn’t have significant incentives to allow that many cargoes of Chevron to go out,” said

Francisco Monaldi,

director of the Latin America Energy Program at Rice University’s Baker Institute for Public Policy. Sending oil to China, even at a heavy discount, would be better for Caracas than only paying debt to Chevron, he said.

The limited scope of the Chevron license is seen as a way to ensure that Mr. Maduro stays the course on negotiations. “Rather than fully opening the door for Venezuelan oil to flow to the U.S. market immediately, what the license proposes is a normalization path that is likely contingent on concessions from the Maduro regime on the political and human-rights front,” said

Luisa Palacios,

senior research scholar at the Columbia University Center on Global Energy Policy.

The license allows Venezuelan oil back into the U.S., historically its largest market, but only if the oil from the PdVSA-Chevron joint ventures is first sold to Chevron and doesn’t authorize exports from the ventures “to any jurisdiction other than the United States,” which appears to restrict PdVSA’s own share of the sales to the U.S. market, said Mr. Monaldi.

The license prohibits transactions involving goods and services from Iran, a U.S.-sanctioned oil producer that has helped Venezuela overcome sanctions in recent years. It blocks dealings with Venezuelan entities owned or controlled by Western-sanctioned Russia, which has played a role in Venezuela’s oil industry.

Jorge Rodriguez,

the head of Venezuela’s Congress as well as the government’s delegation to the Mexico City talks, declined to comment on the issuance of the Chevron license.

Freddy Guevara,

a member of the opposition coalition’s delegation, said the estimated $3 billion in frozen funds intended for humanitarian relief and infrastructure projects in Venezuela would be administered by the United Nations. He cautioned that it would take time to implement the program fully. “It begins now, but the time period is up to three years,” he said.

The Venezuelan state funds frozen in overseas banks by sanctions are expected to be used to alleviate the country’s health, food and electric-power crises in part by building infrastructure for electricity and water-treatment needs. “Not one dollar will go to the vaults of the regime,” Mr. Guevara said.

Chevron plans to restore lost output as it performs maintenance and other essential work, but it won’t attempt major work that would require new investments in the country’s oil fields until debts of $4.2 billion are repaid. That could take about two to three years depending on oil-market conditions, according to people familiar with the matter.

PdVSA owes Chevron and other joint-venture partners their shares of more than two years of revenue from oil sales, after the 2020 U.S. sanctions barred the Venezuelan company from paying its partners, one of the people said. The license would allow Chevron to collect its share of dividends from its joint ventures such as Petropiar, in which Chevron is a 30% partner.

Analysts said the new agreement raises expectations that will take time and work to fulfill. “Ensuring the success of talks won’t be easy, but it’s clear that offering gradual sanctions relief like this in order to incentivize agreements is the only way forward. It’s a Champagne-popping moment for the negotiators, but much more work remains to be done,” said Geoff Ramsey, Venezuela director at the Washington Office on Latin America.

—José de Córdoba and Ginette Gonzalez contributed to this article.

Write to Collin Eaton at collin.eaton@wsj.com and Andrew Restuccia at andrew.restuccia@wsj.com

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World

Donald Trump’s Fate in Justice Department Probes Headed for Special Counsel

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WASHINGTON—Attorney General

Merrick Garland

appointed a former federal and international war-crimes prosecutor as special counsel on Friday to oversee Justice Department investigations into former President

Donald Trump.

Jack Smith, who once led the Justice Department unit that investigates public corruption and since 2018 was the chief prosecutor at The Hague investigating war crimes in Kosovo, will be the third special counsel in five years to examine issues involving Mr. Trump.

He will lead both the probe into the handling of classified documents at Mr. Trump’s Mar-a-Lago resort in Florida and oversee key aspects of the sprawling Justice Department investigation into efforts by Mr. Trump and his allies to overturn his 2020 election loss.

“The Special Counsel is authorized to prosecute federal crimes arising from the investigation of these matters,” Mr. Garland said in a brief memo naming Mr. Smith to the post. The memo said Mr. Smith’s remit doesn’t include cases against those who were physically present at the Jan. 6, 2021, riot at the Capitol.

The appointment comes three days after Mr. Trump announced another bid for the presidency and would mark the naming of the third independent prosecutor in five years to examine issues involving Mr. Trump.

Jack Smith previously led the Justice Department unit that investigates public corruption.



Photo:

U.S. Department of Justice

The move reflects the sensitivity of Mr. Garland overseeing any investigation into Mr. Trump now that he is a declared presidential candidate. President Biden, who has said he intends to run for re-election in 2024, nominated Mr. Garland to head the Justice Department in part for the former judge’s promise to insulate the agency from political influence.

Some legal experts have anticipated such an appointment. Regulations governing special counsels provide for the attorney general to name an outsider if he determines that the investigation or prosecution presents a conflict of interest for the department and recusals of certain officials wouldn’t be enough to overcome the concerns.

Some former Justice Department officials and prosecutors have said such an appointment wouldn’t do much to allay criticism of the FBI and Justice Department by Mr. Trump and his supporters. There are few people with the necessary prosecutorial experience and nonpartisan reputation who would be willing to take on the post, those people say.

A special-counsel appointment won’t entirely eliminate the appearance of a conflict, as Mr. Garland and other senior Justice Department officials are still likely to be involved in some decision-making related to the probe, according to people familiar with past special counsels.

The House committee investigating the Jan. 6, 2021, attack on the Capitol voted in mid-October to issue a subpoena for relevant documents and testimony under oath from former President Donald Trump. Photo: Elizabeth Frantz/Reuters

Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com and Sadie Gurman at sadie.gurman@wsj.com

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Business

First Came the Crypto Crash. Now Comes the Taxman.

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The rout in cryptocurrencies worsened this week with the collapse of the offshore exchange FTX. With bitcoin recently down more than 60% in 2022, many crypto investors would surely like to forget about digital assets, at least for now.

That would be a mistake. The Internal Revenue Service hasn’t lost interest in cryptocurrencies, and investors need to focus on key tax issues before year-end. 

New rules and enforcement actions are coming to ferret out crypto transactions that often went unreported in the past. There’s a bit of good news as well: This year’s painful selloff brings an opportunity for crypto holders to harvest losses to offset future taxes. 

Here’s more to help investors make smart crypto moves in the next few weeks—and get ready for new IRS scrutiny.  

Crypto losses as a tax-saving tool

There’s a silver lining for investors whose crypto holdings are in taxable accounts rather than tax sheltered accounts such as IRAs.   

The benefit is that if an investor sells this crypto and books a capital loss, it can be used to offset future capital gains on winners. These gains don’t have to be on digital assets; they could be on stocks, real estate, or other investments.

If an investor with capital losses has no capital gains to shelter, the losses can offset up to $3,000 of ordinary income such as wages per tax return, per year. These losses don’t expire.  

Say that John has a $20,000 loss in his crypto holdings now. If he sells and has no capital gains to offset, he can reduce his wage income by $3,000 this year and in future years. If he then has a capital gain of $5,000 two years from now, he won’t owe tax on it—and he’ll still have $9,000 to offset future taxes. 

In a key way, crypto losses have an advantage over stock losses. If an investor sells shares at a loss, the “wash-sale” rules penalize him if he also buys the same stock within 30 days before or after the sale.  

But the wash-sale rules don’t currently apply to cryptocurrencies. So crypto investors can have their cake and eat it too, by taking losses now to shelter future gains and then repurchasing favorites right away. There’s no need to wait and risk missing a market surge—if there is one. 

New IRS reporting by brokers

The 2021 Infrastructure Investment and Jobs Act included a provision requiring crypto brokers to report customers’ sale proceeds to the IRS on a 1099 form, if it’s held in a taxable account. The requirements are akin to what brokerage firms report for investors’ stock sales.

The change aims to clamp down on many crypto investors’ cavalier—and sometimes criminal—tax avoidance. Until Congress acted, few crypto transactions had to be reported to the IRS by third parties such as exchanges, and many investors have ignored crypto tax rules. In a recent court filing, the IRS said that in 2019 only about 100,000 tax returns reported crypto transactions. That’s far less than would be expected given research showing that about 20% of American adults have bought, traded, or used cryptocurrencies.   

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Have you been contacted by the IRS about your cryptocurrency holdings? Join the conversation below.

The new law is set to take effect Jan. 1, 2023, so the first forms would go to taxpayers and the IRS in early 2024. However, tax specialists say the date may be postponed because the Treasury Department hasn’t issued regulations detailing the laws defining thorny issues such as who is a crypto broker. Crypto firms also need to update software.  

The new rules will likely increase complexity, even for crypto investors complying with the law—so it could make sense to accelerate moves into this year. More paperwork will likely lead to more errors by taxpayers and the IRS that take time to untangle, says Shehan Chandrasekera, head of tax strategy at CoinTracker, a provider of crypto tax-filing software.   

For crypto holders who aren’t compliant, he adds, “The new reporting doesn’t change the taxation of cryptocurrencies. But it will tell the IRS about your transactions—so it’s important to put things in order now.”    

 New court-ordered searches for crypto tax cheats 

In August and September federal judges approved two new summonses requiring a crypto exchange and a bank to turn over customer information to the IRS to uncover tax cheating using cryptocurrency.

The crypto exchange is sFox, a crypto prime dealer with more than 175,000 customers whose transactions have totaled more than $12 billion since 2015, according to a Justice Department statement. The bank is M.Y. Safra Bank, which had an agreement to provide banking services to sFox customers. Neither business is accused of wrongdoing.

sFox and M.Y. Safra must turn over to the IRS account information on sFox customers who had $20,000 or more in crypto transactions in any one year from Jan. 1, 2016 to Dec. 31, 2021. 

To justify the summonses, the agency provided examples of 10 unnamed people who didn’t declare taxable income from transactions conducted largely through sFox. The unreported income ranged from $1 million by someone allegedly involved in a Ponzi scheme to $5,000 by someone whose return showed wages, retirement income, and Social Security payments—but no crypto profits. 

The IRS has already used this strategy, called a John Doe summons, to pursue crypto tax cheats with transactions of $20,000 or more at three other exchanges:

Coinbase,

Kraken and Circle. From these and other efforts, the agency has assessed more than $110 million in tax due on unreported crypto income, with more expected. Penalties and interest could nearly double the total that some taxpayers owe. 

Future summonses are likely, says Don Fort, a former chief of IRS criminal investigations now with the Kostelanetz law firm: “The IRS and Justice Department have become adept at tailoring requests judges will approve.”  

The IRS’s dogged pursuit of past cases is a reminder to investors with unreported crypto income that it may not stay hidden—and the consequences could be severe. 

Write to Laura Saunders at Laura.Saunders@wsj.com

Corrections & Amplifications
Taxpayers who have no taxable capital gains can deduct up to $3,000 of capital losses against ordinary income such as wages. An earlier version of the story incorrectly said the deduction would reduce income tax, not income. (Corrected on Nov. 11)

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US

Biden to Announce Restrictions on Methane Emissions at COP27

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SHARM EL SHEIKH, Egypt—President Biden is moving to tighten restrictions on emissions of methane, a potent greenhouse gas, and boost funding for developing countries to adapt to the effects of climate change and transition to cleaner technologies, according to the White House. 

Mr. Biden is expected to announce the measures in a speech before a United Nations climate conference, known as COP27, according to a fact sheet released by the White House ahead of the address. The measures include plans for the Environmental Protection Agency to require oil-and-gas companies to monitor existing production facilities for methane leaks and repair them, according to administration officials.

Methane is 80 times as potent at trapping heat from solar radiation as carbon dioxide over its first 20 years in the atmosphere. It is responsible for about half a degree Celsius of global warming since the preindustrial era, and its levels are rising fast, according to measurements made by the National Oceanic and Atmospheric Administration. 

The planned rules affect hundreds of thousands of U.S. wells, storage tanks and natural-gas processing plants, and require companies to replace leaky, older equipment and buy new monitoring tools.

EPA Administrator

Michael Regan

said flaring—a technique used by gas producers to burn off excess methane from oil and natural-gas wells—would be reduced at all well sites under the planned rules. Owners would be required to monitor abandoned wells for methane emissions and plug any leaks, he said.

“We’ve tightened down to limit flaring as much as possible without banning it,” Mr. Regan said.

President Biden met on Friday with Egyptian President Abdel Fattah Al Sisi in Sharm El Sheikh.



Photo:

KEVIN LAMARQUE/REUTERS

The American Petroleum Institute, which represents U.S. oil and gas producers, said it was reviewing the proposed rule. 

“Federal regulation of methane crafted to build on industry’s progress can help accelerate emissions reductions while developing reliable American energy,”

Frank Macchiarola,

API’s senior vice president of policy, economics and regulatory affairs, said in a statement.

Lee Fuller of the Independent Petroleum Association of America, a Washington, D.C., trade group that represents many smaller producers, said his group would be reviewing the regulations closely. 

“While everyone wants to produce oil and natural gas using sound environmental procedures, there will always be a need to assure that the regulatory structure is cost effective and technologically feasible,” he said in a statement. 

Rachel Cleetus, lead economist for the Union of Concerned Scientists, a nonprofit advocacy group, said in a statement that the EPA had “taken an important step forward by issuing a robust standard for methane emissions from oil-and-gas operations.”

Mr. Biden is walking a political tightrope during his brief stopover in Egypt on his way to summits in Cambodia and Indonesia. The war in Ukraine has unleashed turmoil in energy markets, underscoring the world’s continued reliance on fossil fuels.

Control of the U.S. Senate and House of Representatives still hinged on races that were too close to call as of early Friday morning, with both parties girding for a final outcome that might not be known for days. If Republicans win control of either chamber it would mean more power to a party that is deeply skeptical of Mr. Biden’s climate agenda and reluctant to spend billions of dollars to help other countries transition to cleaner sources of energy.

The White House said Mr. Biden is expected to announce an additional $100 million for the United Nations Adaptation Fund, which helps countries adapt to floods, droughts and storms that climate scientists say are increasing in frequency and severity as the earth’s atmosphere and oceans warm. The U.S. has yet to pay the $50 million it pledged to the fund at last year’s climate talks in Glasgow.

As world leaders gather for the COP27 climate conference in Egypt, WSJ looks at how the war in Ukraine and turmoil in energy markets are complicating efforts to reduce carbon emissions. Photo: Mohammed Salem/Reuters

The U.S. also owes $2 billion to the U.N. Green Climate Fund, which finances renewable energy and climate adaptation projects in the developing world. The administration has asked for $1.6 billion for the fund in the fiscal 2023 budget.

The White House said Mr. Biden would also pledge $150 million to a U.S. fund for climate adaptation and resilience across Africa; $13.6 million to the World Meteorological Organization to collect additional weather, water and climate observation across Africa; and $15 million to support the deployment of early-warning systems in Africa by NOAA in conjunction with local weather-forecasting agencies.

The U.S. pledges don’t address demands from poorer nations to provide money for damage they say is the result of climate-related weather events—a new category of funding known as “loss and damage.” This week at the summit, Belgium and Germany pledged a combined 172 million euros, equivalent to $176 million, to support loss-and-damage payments to developing countries. Scotland pledged $5.8 million and Ireland pledged $10 million.

Developing countries have made a renewed push to set up a mechanism for loss-and-damage payments after severe floods in Pakistan this summer that caused $30 billion in losses, according to World Bank estimates, killed more than 1,700 people and displaced 33 million residents. Sen.

Sherry Rehman,

Pakistan’s federal minister for climate change, said she is hoping for more resources from the U.S. and other nations to help her country.

U.S. negotiators are concerned the concept of loss and damage exposes wealthier nations to spiraling liability. There is also the scientific uncertainty of determining which effects can be tied to human-induced climate change and which are part of normal seasonal variation. However, U.S. climate envoy

John Kerry

said this week at the conference that he is open to discussing loss and damage.

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“We need more,” Ms. Rehman said in an interview. “What you hear everywhere at COP is ‘action now.’ Everything else is fluff.”

Mr. Biden arrived at the climate summit Friday after most world leaders have departed. He met privately with Egyptian President

Abdel Fattah Al Sisi

at the conference, located at a resort town along the Red Sea. The U.S. and Germany were expected to announce Friday a $250 million financing program to build 10 gigawatts of new wind-and-solar energy facilities in Egypt while decommissioning 5 gigawatts of inefficient natural-gas power plants.

The Biden administration’s efforts to curb methane emissions follow an agreement reached on the sidelines of the Glasgow summit a year ago, in which China and the U.S. pledged to work on reducing emissions of the gas. Beijing this week announced a plan to cut methane emissions but hasn’t yet included the new measures in its climate plans submitted to the U.N. 

Nigeria announced its first-ever regulations, including limits on flaring, to cut overall methane emissions by more than 60% over 2020 levels. Canada said Thursday it plans to cut emissions of methane from its oil-and-gas industry by more than 75% over 2012 levels by 2030. 

Emissions from flaring are far higher than previous government and industry estimates, according to an analysis of 300 wells in four states published in September in the journal Science.

The White House says 260 billion cubic meters of gas are wasted every year from flaring and methane emissions within the oil-and-gas sector. 

Under the 2015 Paris climate agreement, countries aim to limit global warming to well under 2 degrees Celsius above preindustrial levels and preferably to 1.5 degrees. The gap between the emissions cuts pledged by 166 nations, including the U.S., and their current emissions puts the world on track to warm 2.5 degrees Celsius, or 4.5 degrees Fahrenheit, by the end of the century, according to a recent U.N. report.

White House officials point to Mr. Biden’s support of the Democrats’ climate, health and tax legislation that allocates hundreds of billions of dollars to climate and energy programs, including tax credits for buying electric vehicles and investments in clean technologies.

Administration officials said the legislation has helped put the U.S. on track to meeting Mr. Biden’s goal of cutting domestic emissions 50% below 2005 levels by 2030.

—Matthew Dalton and Scott Patterson contributed to this article.

Write to Eric Niiler at eric.niiler@wsj.com

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Ukraine’s Zelensky Sets Conditions for ‘Genuine’ Peace Talks With Russia

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Ukrainian President

Volodymyr Zelensky

said he was open to negotiations with Russia if they are focused on safeguarding Ukraine’s territorial integrity, compensating Kyiv and bringing to justice perpetrators of war crimes.

Speaking ahead of his address to a global climate summit in Egypt on Tuesday, Mr. Zelensky said late Monday: “Anyone who treats seriously the climate agenda should just as seriously treat the necessity of immediately stopping Russian aggression, resuming our territorial integrity and forcing Russia into genuine peace talks.”

Mr. Zelensky’s statement comes after the U.S., Ukraine’s key backer in its defense against Russia’s invasion, has urged Kyiv to publicly signal that it is open to talks with Moscow, to avoid alienating international opinion.

“One more time: restoration of territorial integrity, respect for the U.N. charter, compensation for all material losses caused by the war, punishment for every war criminal and guarantees that this does not happen again,” Mr. Zelensky said. “Those are completely understandable conditions.”

U.S. officials have said it is up to Ukraine to define the terms of any acceptable settlement. Many Western officials are skeptical that Russian President

Vladimir Putin

will be open soon to a settlement that involves Russian withdrawal from occupied regions of Ukraine—a key demand for Kyiv.

A building damaged by shelling in Shchurove, eastern Ukraine.



Photo:

Andriy Andriyenko/Associated Press

Since Mr. Putin said in late September that swaths of Ukraine’s east and south belonged to Russia, Kyiv has said it wouldn’t negotiate with Moscow until there is a different leader in the Kremlin. Mr. Putin’s insistence that Russia’s territorial demands are nonnegotiable, meanwhile, appears to leave little scope for talks at present.

“We’ve always made clear our readiness for such talks,” Russia’s deputy foreign minister,

Andrei Rudenko,

said Tuesday in comments carried by state news agency RIA. “From our side there are no preliminary conditions whatsoever, except the main condition—for Ukraine to show goodwill.”

Buoyed by recent battlefield successes, Ukraine has demanded that all occupied areas are returned to its control as a condition for any peace deal—including Crimea and parts of the eastern Donbas area that Russia seized in 2014.

Military realities will dictate how much of its internationally recognized borders Ukraine is able to restore, officials in Kyiv and Western capitals say.

Ever since Russia launched its full-scale invasion in February, many Western governments have been skeptical about how much of its territory Ukraine can take back through fighting. Kyiv has sought to erase such doubts with offensives in eastern and southern Ukraine since late summer, which have made inroads, especially in the Kharkiv region.

Continued Western military and financial support is vital for Ukraine’s ability to advance, however. Many in Kyiv fear that a reduction in aid could scuttle Ukraine’s hopes of retaking occupied regions, forcing it into negotiations with a weak hand.

Ukraine also fears any cease-fire would allow Russian forces to regroup and that Mr. Putin would use talks to consolidate Russian control of occupied areas.

Kyiv officials continue to warn the West of the dangers of premature talks.

“What do you mean by the word ‘negotiations’? Russian ultimatums are well-known: ‘we came with tanks, admit defeat and territories loss.’ This is unacceptable. So what to talk about? Or you just hide the word ‘surrender’ behind the word ‘settlement’?,” Ukrainian presidential adviser

Mykhailo Podolyak

said Tuesday in a tweet.

As Russia suffers losses in Ukraine, President Vladimir Putin has made veiled threats to use nuclear weapons—a scenario that security experts still deem unlikely. WSJ looks at satellite images and documents to understand how the process of launching a strike would work. Photo composite: Eve Hartley

Widespread evidence of alleged Russian war crimes in places such as Bucha and Izyum, which Moscow has denied, has hardened Ukraine’s insistence of a full Russian withdrawal from its territory.

However, the global economic toll of the war and signs of fraying political consensus in Western nations are raising uncertainty about how long the U.S. and Europe will continue to back Kyiv’s position.

U.S. national security adviser Jake Sullivan has in recent months engaged in confidential conversations with top aides to Mr. Putin in an effort to reduce the risk of the war widening, while warning Moscow against using nuclear weapons against Ukraine, U.S. and allied officials said Monday.

The aim has been to guard against the risk of escalation and keep communications channels open, and not discuss a settlement of the war in Ukraine, the officials said.

Ukraine has continued to call for further arms deliveries from the West to protect its cities against Russian missile-and-drone attacks and help it recapture occupied territories.

A firefighter works at the scene of a damaged residential building in Lyman, eastern Ukraine.



Photo:

Andriy Andriyenko/Associated Press

Mr. Zelensky, in his comments late Monday, hailed the provision this week of the U.S.-Norwegian National Advanced Surface-to-Air Missile System, or Nasams, and of Spanish-supplied Aspide air-defense systems, after weeks of Russian attacks that have caused substantial damage to Ukraine’s energy infrastructure and caused numerous blackouts in Ukrainian cities.

“The defense of Ukraine’s sky is obviously not complete, but gradually we are moving toward our goal,” Mr. Zelensky said. He added that Russia had hit 50 towns and cities across Ukraine with missile attacks on Monday, the latest barrage aimed at sapping Ukrainian morale as winter sets in.

Ukraine’s military offensive against Russian occupation forces in the south has slowed as both sides tire after weeks of fighting and as muddy ground in some areas makes advancing difficult for armored vehicles.

In the southern Kherson region, Russian-installed officials say they have almost completed a mass-evacuation campaign aimed at clearing the regional capital of residents in advance of their planned defense against advancing Ukrainian forces. Some elite Russian forces have left the city, Ukrainian officials say, and in their place Moscow has brought in newly mobilized soldiers tasked with holding the line if Kyiv’s forces reach the city.

A market in downtown Kyiv.



Photo:

Bernat Armangue/Associated Press

Western officials said Tuesday that Russia has begun constructing defensive structures near occupied Mariupol, a city deep behind the front lines in the country’s southeast that was captured by Russia in May after months of intense fighting that reduced much of it to rubble.

Russian occupation authorities in Mariupol are producing concrete antitank structures known as dragon’s teeth as part of efforts to reinforce the area, the U.K.’s Defense Ministry said Tuesday. Dragon’s teeth have also been sent to the regions of Kherson and Zaporizhzhia, which Russia partly controls and now claims as part of its territory, the ministry said.

The reported construction of fortification lines far from areas of active fighting is evidence of a Russian campaign to shore up occupied areas as fortunes on the battlefield shift in Kyiv’s favor, Western officials say.

“This activity suggests Russia is making a significant effort to prepare defenses in depth behind their current front line, likely to forestall any rapid Ukrainian advances in the event of breakthroughs,” the U.K. Defense Ministry said.

People line up for soup, bread and hot food at a stand in Kyiv.



Photo:

Ed Ram/Getty Images

Write to Matthew Luxmoore at Matthew.Luxmoore@wsj.com and Marcus Walker at marcus.walker@wsj.com

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Senior White House Official Involved in Undisclosed Talks With Top Putin Aides

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WASHINGTON—President Biden’s top national-security adviser has engaged in recent months in confidential conversations with top aides to Russian President Vladimir Putin in an effort to reduce the risk of a broader conflict over Ukraine and warn Moscow against using nuclear or other weapons of mass destruction, U.S. and allied officials said.

The officials said that U.S. national-security adviser Jake Sullivan has been in contact with

Yuri Ushakov,

a foreign-policy adviser to Mr. Putin. Mr. Sullivan also has spoken with his direct counterpart in the Russian government,

Nikolai Patrushev,

the officials added.
The aim has been to guard against the risk of escalation and keep communications channels open, and not to discuss a settlement of the war in Ukraine, the officials said.

Asked whether Mr. Sullivan has engaged in undisclosed conversations with Messrs. Ushakov or Patrushev, National Security Council spokeswoman Adrienne Watson said: “People claim a lot of things” and declined to comment further. The Kremlin didn’t respond to a request for comment.

The White House hasn’t publicly acknowledged any calls between Mr. Sullivan and any senior Russian official since March, when he spoke with Mr. Patrushev.

The unpublicized discussions come as traditional diplomatic contacts between Washington and Moscow have dwindled and Mr. Putin and his aides have hinted he might resort to using nuclear arms to protect Russian territory, as well as gains made in his invasion of Ukraine this year.

Despite its support for Ukraine and punitive measures against Russia for the invasion, the White House has said that maintaining some level of contact with Moscow is imperative for achieving certain mutual national-security interests.

Several U.S. officials said that Mr. Sullivan is known within the administration as pushing for a line of communication with Russia, even as other top policy makers feel that talks in the current diplomatic and military environment wouldn’t be fruitful.

Officials didn’t provide the precise dates and number of the calls or say whether they had been productive.

Some former American officials said that it was useful for the White House to maintain contact with the Kremlin as U.S.-Russian relations are at their lowest point since the end of the Cold War.

“I think it’s always important, especially for nuclear-armed countries, to maintain open channels of communication to help understand what each side is thinking and thereby avoid the possibility of an accidental confrontation or war,” said

Ivo Daalder,

who served as the U.S. ambassador to NATO during the Obama administration. “National-security advisers are the closest conduit to the Oval Office without bringing the president directly into that communication channel.”

The U.S. national-security adviser has had confidential conversations with top aides to Russian President Vladimir Putin to warn Moscow against using nuclear weapons.



Photo:

Evgeny Biyatov/Associated Press

President Biden sought to forge a working relationship with Mr. Putin during his first year in office, which culminated in a summit in Geneva in June 2021. Those talks touched on Ukraine, where the sides had clear differences, among an array of other subjects.

By October, however, U.S. intelligence indicated that Russian forces were preparing to invade Ukraine. CIA Director

William Burns

was sent to Moscow in early November 2021 to warn Mr. Putin against an invasion.

Mr. Biden spoke twice with Mr. Putin in December 2021 and again in February 2022 to try to avert a Russian attack while U.S. diplomats engaged with their Russian counterparts.

After Russian forces invaded Ukraine on Feb. 24, however, diplomatic and military contacts between the two sides became infrequent.

Officials said Mr. Sullivan has taken a leading role in coordinating the Biden administration’s policy and plans in response to Russia’s invasion of Ukraine—something that is expected of the president’s top national-security adviser. However, he has also been involved in diplomatic efforts, including a visit to Kyiv on Friday to speak with Ukraine’s president, Volodymyr Zelensky, and Defense Minister

Oleksii Reznikov,

meetings traditionally handled by the secretaries of state or defense.

Mr. Sullivan has spoken to Ukraine’s leadership, urging them to publicly signal their willingness to resolve the conflict, a U.S. official said. The U.S. isn’t pushing Ukraine to negotiate, the official added, but rather to show allies that it is seeking a resolution to the conflict, which has affected world oil and food prices.

The Washington Post earlier reported efforts by Mr. Sullivan to persuade Ukrainian officials to seek a resolution.

When Mr. Putin and his senior aides hinted in September that Russia might use nuclear weapons if his forces were pushed into a corner, Mr. Sullivan said that the Biden administration had “communicated directly, privately at very high levels to the Kremlin that any use of nuclear weapons will be met with catastrophic consequences for Russia.”

The White House had declined to say how that warning was communicated.

The Pentagon said U.S. Secretary of Defense Lloyd Austin spoke with Russia’s defense minister and stressed the importance of maintaining lines of communication.



Photo:

Sarah Silbiger/Getty Images

Secretary of Defense

Lloyd Austin

and several of his allied counterparts spoke this past month with Russian Defense Minister

Sergei Shoigu

as Moscow claimed Kyiv was preparing to use a so-called dirty bomb against it, something Ukrainian and Western officials have denied.

Mr. Austin initiated the initial call, which was their first discussion since May, to stress the importance of maintaining lines of communication, the Pentagon said. Mr. Shoigu initiated the second.

Mr. Ushakov, the foreign-policy adviser to Mr. Putin, has served as an ambassador in Washington and is regarded by former and current U.S. officials as a conduit to the Russian leader.

Mr. Burns met with Mr. Ushakov in November 2021 during his visit to Moscow before speaking with Mr. Putin. Mr. Sullivan spoke again with Mr. Ushakov in December.

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In his March conversation with Mr. Patrushev, which the White House described, Mr. Sullivan told the Russian official that Moscow’s forces should stop attacking Ukrainian cities and towns and warned the Kremlin not to use chemical or biological weapons.

Mr. Patrushev, who entered the KGB in the 1970s and rose to become director of the Federal Security Service from 1999 to 2008, is regarded by American officials as a hard-liner who shares many of Mr. Putin’s suspicions about the U.S.

A Russian statement about the March conversation between Mr. Sullivan and Mr. Patrushev said that it took place at the initiative of the U.S., and that Mr. Patrushev has stressed “the need to stop Washington’s support of neo-Nazis and terrorists in Ukraine and facilitate the transfer of foreign mercenaries to the conflict zone, as well as refuse to continue supplying weapons to the Kiev regime.”

Even as relations between Washington and Moscow have deteriorated, the U.S. has sought to preserve some areas of cooperation, especially on strategic arms control and the International Space Station.

Washington and Moscow have adhered to the New START treaty, which limits long-range U.S. and Russian nuclear arms and is due to expire in 2026.

U.S. and Russian officials are planning to hold meetings of the Bilateral Consultative Commission, which was established by the New START treaty to discuss its implementation, according to U.S. officials and a Russian media report. One aim is to discuss resuming inspections under New START that were suspended when the Covid-19 pandemic began, U.S. officials say.

While Switzerland had been the traditional host nation for such talks, Moscow has said that it no longer considers it a neutral country because, like other European nations, it has imposed economic sanctions following Russia’s invasion of Ukraine. Western sanctions have also complicated the Russians’ travel arrangements, so plans are being made to hold the meeting in Cairo in late November, the officials said.

The State Department and the Russian government declined to comment on the meetings, which aren’t generally announced in advance.

—Nancy A. Youssef contributed to this article.

Write to Vivian Salama at vivian.salama@wsj.com and Michael R. Gordon at michael.gordon@wsj.com

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China Rebukes Russia’s Nuclear Threats in Ukraine for First Time

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China has warned Russia against threatening to use nuclear weapons in the conflict in Ukraine, in a rare departure from its usual tacit support for Moscow’s positions.

The warning came during talks on Friday between Chinese leader

Xi Jinping

and German Chancellor

Olaf Scholz

in Beijing, according to Mr. Scholz and the Chinese state news agency Xinhua.

Messrs. Xi and Scholz agreed to oppose the use or threat of use of nuclear weapons, according to Mr. Scholz and a report by Xinhua, which normally echoes Beijing’s official positions.

The international community should “oppose the use of or the threat to use nuclear weapons, advocate that nuclear weapons cannot be used and that nuclear wars must not be fought, and prevent a nuclear crisis in Eurasia,” Mr. Xi said according to Xinhua.

The comment, the first rebuke of its kind attributed to the Chinese leader since Russia invaded Ukraine in February, marks a change in tone for Beijing after the government there said last week that it would deepen its cooperation with Russia at all levels, experts said.

“Beijing genuinely does not want a nuclear attack or war,” said Francesca Ghiretti, an analyst with the Mercator Institute for China Studies in Berlin.

Xi Jinping welcomed German leader Olaf Scholz to Beijing on Friday as the countries agreed to approve BioNTech’s Covid-19 vaccine for foreign residents in China. The chancellor has sought to preserve economic ties while responding to Beijing’s support for Moscow amid the Ukraine war. Photo: Pool/via Reuters

“Opposing the use of nuclear weapons and threats is a low hanging fruit and low-cost statement to achieve international approval and positive spillover for the German-China relationship, and perhaps that with the EU, too,” she added.

While Mr. Xi’s comments would be noted in Moscow, said Jude Blanchette, the Freeman Chair in China Studies at the Center for Strategic and International Studies, they should not be read as meaning China would be willing or able to influence any decision by the Kremlin to escalate the war by using nonconventional weapons.

“The brutal reality is if Putin gets to the point where he is willing to use nuclear weapons, Beijing’s leverage over him is close to zero,” he said, referring to Russian President

Vladimir Putin.

Efforts for a peaceful settlement of the Ukraine conflict and avoiding a greater humanitarian crisis are also required, the Chinese leader said, according to Xinhua.

Mr. Putin has made several thinly veiled threats about using nuclear weapons in Ukraine or against Kyiv’s allies if they got too deeply involved in the conflict. Open nuclear threats against North Atlantic Treaty Organization members are aired almost daily by Russian state broadcasters. Last week, Mr. Putin and Russian diplomats seemed to reverse course, with the Russian president saying there was no need to use nuclear weapons on Ukraine.

Russia’s armed forces are believed by Western experts to have as many as 2,000 so-called tactical nuclear weapons stored in special locations around the country, including some located close to Ukraine. These weapons, which include artillery shells, have much smaller yields than the warheads in the American and Russian strategic nuclear arsenals but can inflict far bigger damage than conventional ordnance.

The rhetoric has caused Western leaders to grow alarmed that Mr. Putin could seek to reverse his troops’ poor showing on the battlefield by detonating a nuclear weapon in Ukraine.

“We agree that nuclear threats are extremely dangerous,” Mr. Scholz, the first Group of Seven leader to visit Beijing since the start of the Covid-19 pandemic, tweeted after his meeting with Mr. Xi. “The use of such weapons would cross a red line,” he added.

He also said that he asked Mr. Xi to bring his influence on Russia to bear.

—Laurence Norman contributed to this article.

Write to Bojan Pancevski at bojan.pancevski@wsj.com

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Israel’s Benjamin Netanyahu Holds Slight Edge in Election Exit Polls

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TEL AVIV—Former Israeli Prime Minister

Benjamin Netanyahu

was holding on to an edge over his rivals in exit polls for Israel’s fifth election in four years, but the projections showed his lead as marginal and the outcome could change as more votes are tallied.

According to figures from an exit poll by Israel’s public broadcaster Kan, updated slightly before 1 a.m. Wednesday Israel time, Mr. Netanyahu’s Likud party was projected to win 30 seats in Israel’s parliament, or Knesset. His bloc of right-wing and religious allies was projected to win 62 seats out of the 120-seat Knesset.

That gives him an advantage over Israel’s current centrist Prime Minister

Yair Lapid,

who has vowed to form a government without Mr. Netanyahu and whose Yesh Atid party was projected to have won 23 seats, according to Kan. Mr. Lapid’s bloc was projected to win 54 seats, according to the latest exit poll.

Supporters of Benjamin Netanyahu’s party on the eve of the vote displayed a banner saying ‘only Likud can.’



Photo:

menahem kahana/Agence France-Presse/Getty Images

Early on Wednesday morning, Mr. Netanyahu took the stage in front of a crowd of cheering supporters in Jerusalem to tell them they were “on the cusp of a very great victory.”

“We need to wait for the final results. But one thing is already clear: Our path, the Likud’s path, has proven itself,” Mr. Netanyahu said.

About 71.3% of eligible voters headed to the ballot box, the highest tally since 2015, according to Israel’s Central Elections Committee. By 6 a.m. in Israel, only about 34% of the vote had been counted, making the results fluid.

Mr. Netanyahu has promised voters he would form what would be the country’s most right-wing and religious coalition in its history. It would include an alliance of far-right and religious lawmakers proposing tough measures to quell Palestinian unrest in the West Bank and pass legislation to weaken Israel’s judiciary. The joint leader of that alliance is the far-right lawmaker

Itamar Ben-Gvir,

whose Religious Zionism party received 15 seats, according to Kan, making it the third-largest party in the Knesset.

Mr. Netanyahu has vowed to make Mr. Ben-Gvir a minister if he forms a government. Mr. Ben-Gvir is requesting control of the public-security ministry, which would give him control of the country’s police force.

Itamar Ben-Gvir’s Religious Zionism party was projected to win the third-largest number of seats.



Photo:

AMIR COHEN/REUTERS

Mr. Ben-Gvir, who was convicted in 2007 of incitement to racism and supporting a terrorist organization, was best known in Israel for defending Israelis accused of violent attacks against Palestinians in court, before rising to prominence over the past year on a law-and-order campaign. He has told voters that he hopes to make Israelis safer by deporting people who he believes undermine the Jewish state, executing terrorists and giving immunity to Israeli troops and police who shoot and kill Arabs who are seen holding stones or Molotov cocktails before they throw them.

At Mr. Ben-Gvir’s election-night party in Jerusalem, activists enthusiastically cheered the exit-poll results, dancing in circles while waving blue-and-white Israeli flags.

“It feels like Independence Day,” said Alon Hazon, 47 years old, from Holon in central Israel. “We’re ready to take our country back.”

Arab citizens of Israel have expressed fear over Mr. Ben-Gvir. Riham Abu Nar, 19, who works at a kindergarten in Jaffa, said she was voting for the Arab-led Hadash-Ta’al party to prevent Mr. Ben-Gvir from gaining power.

“Itamar is really racist,” said Ms. Abu Nar, who is an Arab citizen of Israel. “He’s obsessed with Arabs. Our lives will be in danger if he’s in government.”

Mr. Ben-Gvir has denied that he is a racist.

The Islamist Ra’am party, which broke a taboo to join the previous government, received five seats in the Kan poll, while the Arab-led alliance of Hadash-Ta’al received four seats.

Mr. Netanyahu’s apparent parliamentary majority could be lost if the Palestinian nationalist Balad party crosses the electoral threshold of 3.25% of the total vote. According to Kan’s exit poll, Balad has 3.1% of the total vote.

Prime Minister Yair Lapid leads a centrist secular party allied with right-wing, left-wing and Arab factions.



Photo:

Ariel Schalit/Associated Press

Israelis remain split over whether Mr. Netanyahu—who was the nation’s longest-serving prime minister and was ousted last year—should return to power. He is beloved by a large number of Israelis, many of whom refer to him as “the King of Israel.” But he has been unable to lead his Likud party to a decisive victory since 2015, as Israelis on both the right and left remain torn over whether he should serve as prime minister while on trial for corruption.

“Our previous good and strong governments were led by Bibi,” said Likud voter Avigayil Neuman, 28, from Jerusalem’s Rehavia neighborhood, referring to Mr. Netanyahu by his nickname.

“I’m sick of right-wing governments led by Netanyahu,” said Dana Lenzini, a teacher from Tel Aviv. She cast her vote for Mr. Lapid’s Yesh Atid party, saying he had done a fine job in the four months he has been premier.

Mr. Netanyahu’s trial on corruption charges, now over two years old, was a rallying cry for his opponents in the past but doesn’t loom as large in this election, with prosecutors suffering some courtroom setbacks. Still, the trial underscores the stakes for Mr. Netanyahu, who denies any wrongdoing. His potential coalition allies say they will pass legislation that will make him immune from prosecution. He denies that he is seeking re-election to evade the trial.

The fragmented nature of the Israeli political landscape means that parties must form coalitions to govern.



Photo:

Daniel Rolider/Getty Images

Mr. Lapid, who leads a centrist secular party but allies with right-wing, left-wing and Arab factions, has warned voters that women, LGBT Israelis and Arab citizens are all at risk of seeing their rights diminished if Mr. Netanyahu and his right-wing and religious coalition are ushered into power. Mr. Lapid has cast the election as a choice over Israel’s future as a democratic state.

“I know that they’ve already declared the end of democracy a thousand times,” Mr. Lapid said Wednesday. “But this time it’s not a threat. It’s the election promise of the third-largest party in Israel and opposition leader

Benjamin Netanyahu

is entirely dependent on them.”

Aviv Bertele, 42, who runs a Hebrew language school in Tel Aviv, said he voted for the left-wing Meretz party despite being more right-wing because he wants lawmakers who can fight against people such as Mr. Ben-Gvir, whose alliance he fears could limit the rights of LGBT people and women.

“As a member of the LGBT community, and as someone who considers himself a feminist, I think we owe it to ourselves to protect ourselves from fascist forces like Itamar Ben-Gvir,” he said. “These elections are crucial to determine whether Israel will go in a liberal way or become something like Iran or Saudi Arabia.”

The result of the fifth ballot is likely to become clearer Wednesday, when Israel’s election committee will have finished the bulk of the vote tally. Under Israeli law, parties must win at least 3.25% of the vote to enter the Knesset. The fragmented nature of the Israeli political landscape means that parties must form coalitions to secure a parliamentary majority and govern. The process is likely to drag on for weeks, if not months. Analysts aren’t ruling out a sixth election.

In the coming days, Israeli President

Isaac Herzog

will choose the leader he believes has the best likelihood of assembling a governing coalition, usually that of the party that wins the most seats or receives the most recommendations to form a government by fellow lawmakers. That person has six weeks to try to cobble together a majority coalition that includes the support of smaller parties.

Write to Dov Lieber at dov.lieber@wsj.com

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