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World

Russia Seeks Gains in Ukraine Before Western Tanks Turn Up

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Russian forces pressed an offensive in eastern Ukraine on Friday, seeking to seize an advantage in the months before tanks pledged by Kyiv’s Western allies begin to arrive on the battlefield.

Ukrainian forces said on Friday they had repelled Russian attacks on Vuhledar and several other villages in the eastern Donetsk region over the preceding 24 hours. Russia also launched 148 attacks along the front line with Ukrainian forces in the southern Zaporizhzhia region over the past day using tanks, rockets and artillery, the regional military administration said. 

Russia’s Defense Ministry said it had undertaken more offensive maneuvers over the past 24 hours both in Zaporizhzhia and Vuhledar, where it said it had launched strikes on Ukraine’s 72nd Brigade and had downed a Ukrainian Su-25 warplane.

The European Union on Friday, meanwhile, extended its economic sanctions on Russia for the next six months. The decision affects a swath of sanctions imposed last year, from financial sanctions on Russian banks and its central bank to export and import bans. 

There had been concerns that Hungarian Prime Minister

Viktor Orban

could push to weaken the sanctions package. In recent months, he has attacked the EU’s sanctions, especially the EU oil import embargo on Moscow, saying they are more costly for Europe than for Russia. Decisions on sanctions are taken by consensus among the EU’s 27 member states. 

While Hungary stepped back from objecting to renewing the economic sanctions, it is pushing for the EU to drop sanctions on several Russian executives who have been blacklisted by the EU, according to several EU diplomats. A decision is due in March on rolling over these sanctions. 

Ukraine’s President

Volodymyr Zelensky

discussed the situation in Vuhledar and the city of Bakhmut at a meeting with military chiefs on Thursday, he said in his nightly address.

Russian servicemen in Ukraine launch rockets in an image released Friday by the Russian Defense Ministry.



Photo:

Russian Defense Ministry Press O/Zuma Press

After months of setbacks, Russian forces earlier this month broke through Ukrainian defenses in the east to seize the town of Soledar. That has made it harder for Ukraine to keep hold of neighboring Bakhmut, which has been at the epicenter of the war for several months. The city is central to Russia’s main goal: to take over the remainder of Donetsk, and the wider industrial area known as Donbas. But the fighting there has come at huge cost for both sides.

“The more Russia loses in this battle for Donbas, the less its overall potential will be,” the Ukrainian president said. “We know what the occupiers are planning. We are countering it.”

Ukrainian officials warn that Russia is gearing up for a renewed onslaught this spring after mobilizing some 300,000 men to shore up its faltering campaign last fall. For Moscow, there is a window before tanks pledged this week by Kyiv’s Western allies arrive in Ukraine, potentially tilting the battlefield again. 

Russia’s Defense Ministry said Friday its forces had launched a series of strikes over the past day on Ukrainian military and infrastructure targets that had disrupted the transfer of weapons, including those from countries in the North Atlantic Treaty Organization, being delivered to the front.

Kyiv’s allies are rushing to assemble two battalions’ worth of Leopard 2 tanks from a range of European countries after Germany and the U.S. committed to provide their own tanks. The initial battalion is expected to arrive in Ukraine within three months.

A Ukrainian serviceman in Bakhmut rests next to an armored medical vehicle.



Photo:

anatolii stepanov/Agence France-Presse/Getty Images

Poland, which has been at the forefront of pushing for increased military support for Ukraine, on Friday said it would send 60 upgraded T-72 tanks—half of them Polish-made PT-91 Twardy tanks—in addition to its contribution of 14 Leopards.

The U.S. has also pledged 31 M1 Abrams tanks, but those will take much longer to arrive in Ukraine because they are being procured through the defense industry instead of being pulled from existing American defense stocks. 

Mr. Zelensky has urged Western countries to speed up the delivery of tanks and the training of Ukrainian forces to use them as Russia regains initiative.

Russian officials have said the tanks won’t alter dynamics on the battlefield and will only lead to escalation in the war.

Stefano Sannino,

secretary-general of the European Union’s European External Action Service, said during a visit to Japan that German and U.S. tank provisions weren’t escalatory and were meant to help Ukrainians defend themselves, rather than making them attackers. The decision to supply them is in response to Russian escalation, Mr. Sannino said, accusing Moscow of carrying out indiscriminate attacks on civilians and cities. 

Shelling has caused damage in central Bakhmut as Ukrainian and Russian forces fight over the city.



Photo:

Emanuele Satolli for The Wall Street Journal

The tanks will enable Ukraine to destroy enemy tanks, offer greater protection and support combined operations, the U.K.’s Ministry of Defense said.

Assessing recent Russian claims of advances, the U.K.’s Defense Ministry said Russian forces had likely conducted local, probing attacks near Vuhledar in the east and Orikhiv in the Zaporizhzhia region but that Russia hadn’t achieved substantial gains. 

Russian military sources are deliberately spreading misinformation in an effort to imply that the Russian operation is sustaining momentum, the ministry said.

Write to Isabel Coles at isabel.coles@wsj.com

As the U.S. and its allies start sending Abrams, Leopards and other tanks to help Ukraine, those vehicles are set to change the dynamics of the war along the front lines. WSJ examines how the tanks that Ukraine will receive from the West compare with Russia’s vehicles. Illustration: Adam Adada

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Business

OPEC+ Eyes Output Increase Ahead of Restrictions on Russian Oil

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Saudi Arabia and other OPEC oil producers are discussing an output increase, the group’s delegates said, a move that could help heal a rift with the Biden administration and keep energy flowing amid new attempts to blunt Russia’s oil industry over the Ukraine war.

A production increase of up to 500,000 barrels a day is now under discussion for OPEC+’s Dec. 4 meeting, delegates said. The move would come a day before the European Union is set to impose an embargo on Russian oil and the Group of Seven wealthy nations’ plans to launch a price cap on Russian crude sales, potentially taking Moscow’s petroleum supplies off the market. 

After The Wall Street Journal and other news organizations reported on the discussions Monday, Saudi energy minister Prince

Abdulaziz bin Salman

denied the reports and said a production cut was possible instead.

Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day at the most recent meeting of the Organization of the Petroleum Exporting Countries and their Russia-led allies, a group known collectively as OPEC+. 

The White House said the production cut undermined global efforts to blunt Russia’s war in Ukraine. It was also viewed as a political slap in the face to President Biden, coming before the congressional midterm elections at a time of high inflation. Saudi-U.S. relations have hit a low point over oil-production disagreements this year, though U.S. officials had said they were looking to the Dec. 4 OPEC+ meeting with some hope.

Talk of a production increase has emerged after the Biden administration told a federal court judge that Saudi Crown

Prince Mohammed

bin Salman should have sovereign immunity from a U.S. federal lawsuit related to the brutal killing of Saudi journalist Jamal Khashoggi. The immunity decision amounted to a concession to Prince Mohammed, bolstering his standing as the kingdom’s de facto ruler after the Biden administration tried for months to isolate him. 

It is an unusual time for OPEC+ to consider a production increase, with global oil prices falling more than 10% since the first week of November. Oil prices fell 5% after reports of the increase and then pared those losses after

Prince Abdulaziz

‘s comments. Brent crude traded at $86.25 on Monday afternoon, down more than 1%. 

Ostensibly, delegates said, a production increase would be in response to expectations that oil consumption will rise in the winter, as it normally does. Oil demand is expected to increase by 1.69 million barrels a day to 101.3 million barrels a day in the first quarter next year, compared with the average level in 2022. 

Saudi energy minister Abdulaziz bin Salman has said the kingdom would supply oil to ‘all who need it.’



Photo:

AHMED YOSRI/REUTERS

OPEC and its allies say they have been carefully studying the G-7 plans to impose a price cap on Russian oil, conceding privately that they see any such move by crude consumers to control the market as a threat. Russia has said it wouldn’t sell oil to any country participating in the price cap, potentially resulting in another effective production cut from Moscow—one of the world’s top three oil producers.

Prince Abdulaziz said last month that the kingdom would “supply oil to all who need it from us,” speaking in response to a question about looming Russian oil shortages. OPEC members have signaled to Western countries that they would step up if Russian output fell. 

Talk of a production increase sets up a potential fight between OPEC+’s two heavyweight producers, Saudi Arabia and Russia. The countries have an oil-production alliance that industry officials in both nations have described as a marriage of convenience, and they have clashed before. 

Saudi officials have been adamant that their decision to cut production last month wasn’t designed to support Russia’s war in Ukraine. Instead, they say, the cut was intended to get ahead of flagging demand for oil caused by a global economy showing signs of slowing down. 

Raising oil production ahead of the price cap and EU embargo could give the Saudis another argument that they are acting in their own interests, and not Russia’s. 

Another factor driving discussion around raising output: Two big OPEC members, Iraq and the United Arab Emirates, want to pump more oil, OPEC delegates said. Both countries are pushing the oil-producing group to allow them a higher daily-production ceiling, delegates said, a change that, if granted, could account for more oil production. 

Under OPEC’s complex quota system, the U.A.E. is obligated to hold its crude production to no more than 3.018 million barrels a day. State-owned Abu Dhabi National Oil Co., which produces most of the U.A.E.’s output, has an output capacity of 4.45 million barrels a day and plans to accelerate its goal of reaching 5 million barrels of daily capacity by 2025. Abu Dhabi has long pushed for a higher OPEC quota, only to be rebuffed by the Saudis, OPEC delegates have said.

Last year, the country was the lone holdout on a deal to boost crude output in OPEC+, saying it would agree only if allowed to boost its own production much more than other members. The public standoff inside OPEC was the first sign that the U.A.E. has adopted a new strategy: Sell as much crude as possible before demand dries up.

Earlier this month, Iraqi Prime Minister Mohammed Shia’ al-Sudani said that his country, which is the second-largest crude oil producer in OPEC, would discuss a new quota with other members at its next meeting.

A discussion of OPEC production quotas has been on hold for months. The idea faces opposition from some OPEC nations because many can’t meet their current targets and watching other countries run up their quotas could cause political problems domestically, delegates said. 

—Michael Amon contributed to this article.

Write to Summer Said at summer.said@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

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World

Russia Says It Will Rejoin Ukraine Grain-Export Deal

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Russia said it would rejoin a deal allowing for the safe passage of Ukrainian grain, ending days of uncertainty over future shipments and feeding some criticism at home that Moscow had capitulated in the standoff.

Over the weekend, Russia suspended its involvement in an agreement with the United Nations and Turkey that was struck in July and allowed for the safe passage of grain exports from war-torn Ukrainian ports through the Black Sea to world markets. Russian authorities had said a maritime corridor used to facilitate the grain shipments had been used in an attack on Russia-occupied Crimea. Moscow threatened to board ships that left without its permission.

Russia’s Defense Ministry said early Wednesday it had received written guarantees from Kyiv that Ukraine wouldn’t use the corridor to attack Russian forces and that those were sufficient to rejoin the deal. President

Vladimir Putin

later Wednesday said that Russia reserved the right to pull out of the deal, but that it wouldn’t interfere in any future grain shipments from Ukraine directly to Turkey.

The justification provided by the Defense Ministry triggered derision in Moscow, where commentators have openly criticized Russia’s execution of the war in Ukraine. Senior military officials have at times drawn fire from pro-Kremlin military bloggers for losing ground to Ukraine’s army in recent months and for other moves these critics have called tactical or strategic mistakes. Russian officials have also had to defend themselves against criticism they have bungled a recent mobilization of reinforcements across the country.

“We trust Kyiv that the grain deal will not be used for military purposes. Brilliant,” wrote political commentator

Pavel Danilin,

director of the Center for Political Analysis, a pro-Kremlin Moscow-based think tank, questioning the logic of trusting Ukraine.

After Russia said over the weekend that it was suspending its participation in the deal, ships continued to pull in and out of Ukraine, navigating through a maritime corridor established to safeguard the trade. Moscow then threatened it would intercept ships that disembarked without permission, but Russia’s navy didn’t stop any vessels.

The relatively smooth operation, despite Russia’s suspension, was taken by some critics as a sign Moscow was powerless to upset the trade, even if it wanted to.

“The Kremlin itself simply fell into a trap from which it did not know how to get out,”

Tatiana Stanovaya,

founder of R.Politik, an independent political-analysis firm founded in Moscow, wrote on Telegram.

An oil refinery in Sicily, owned by Russia’s second largest oil and gas giant Lukoil, acts as a pass-through for Russian crude, which ultimately makes its way to the U.S. as gasoline and other refined oil products. Photo Illustration: Laura Kammermann

Among shipping and insurance executives, though, Russia’s suspension was threatening to dry up underwriting for voyages. Insurers were pulling policies and refusing to write new ones without Russia’s participation in the deal.

“You can’t get insurance with Russia out of the agreement,” said

Nikolas Tsakos,

president and chief executive of U.S.-listed, Greece-based Tsakos Energy Navigation Ltd. Shipowners said insurers have resumed offering cover.

The grain standoff came as Russia faces setbacks on the battlefield and far from it. Ukrainian forces have taken back swaths of terrain that Russian forces had occupied in the early days of the invasion. Meanwhile, Russia’s economic leverage over Europe, in the form of its once-prodigious sales of natural gas, has recently waned—at least temporarily. European buyers have pivoted from Russian supplies, while Moscow cut back sharply on its sales to Europe.

Still, the continent has managed in recent months to sock away enough gas in storage that analysts believe will help it avoid the sort of shortages and rationings many Western officials just a few months ago had been bracing to endure. That new comfort could be short-lived, analysts say, if there is a colder-than-expected winter or infrastructure problems that further disrupt supplies.

Russia’s grain-deal suspension threatened to increase economic pressure on Ukraine, which relied on agriculture for about 10% of its gross domestic product before the war, Western and Ukrainian officials said. The Russian shutdown also imperiled food supplies for millions of people in poorer countries that import Ukrainian wheat.

Russia’s invasion of Ukraine had bottled up those grain exports, sending global prices soaring. The U.N.-brokered deal moderated those prices, but also appeared to give Moscow outsize leverage on markets. As Mr. Putin threatened in recent weeks to leave the deal, Western officials accused him of using food as a weapon.

A U.N. official prepares to inspect in Istanbul a ship from Ukraine loaded with grain.



Photo:

yasin akgul/Agence France-Presse/Getty Images

Ismini Palla,

a spokeswoman for the U.N. at a coordination center in Istanbul that is charged with overseeing the deal, said Wednesday’s pause in shipping, which had been anticipated before Russia’s decision to rejoin the deal, was intended “to provide time for planning and discussions for the next movement of vessels.”

Ukraine shipped nearly 10 million tons of corn, wheat, sunflower oil and other products through the deal’s maritime corridor between August and October, helping to return the country’s exports to prewar levels. More than 100 large bulk ships are involved in the trade.

Russia stopped cooperating with the agreement after it accused Ukraine of using the corridor to attack Russian forces over the weekend. The U.N. said no military vessels are allowed to approach the corridor, which is closely monitored using satellite data.

In threatening to abandon the deal in recent months, Russia had complained that not enough of Ukraine’s grain was going to poor countries and said Western sanctions had slowed Russian food and fertilizer exports. U.S. and European Union officials say the sanctions don’t apply to food products. The U.N. said the measures have created obstacles to financing, insuring, shipping and paying for Russian products.

Russian shipping executives said vessel arrivals at Russian export ports had fallen by 20% over the past two months, with the majority of ships shifting to move Ukrainian cargoes.

U.N. Secretary-General

António Guterres

praised Russia’s renewed participation in the deal. Mr. Guterres “continues his engagement with all actors towards the renewal and full implementation of the Initiative, and he also remains committed to removing the remaining obstacles to the exports of Russian food and fertilizer,” his spokesman,

Stéphane Dujarric,

said.

Russia’s Defense Ministry said Wednesday that thanks to the U.N. and Turkey, “it was possible to obtain the necessary written guarantees from Ukraine” that it wouldn’t use the maritime corridor and Ukrainian ports for combat operations against Russia. Russia “considers that the guarantees received at the moment appear to be sufficient and resumes the implementation of the agreement,” it said.

Write to Jared Malsin at jared.malsin@wsj.com, Ann M. Simmons at ann.simmons@wsj.com and Costas Paris at costas.paris@wsj.com

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Business

American Executives in Limbo at Chinese Chip Companies After U.S. Ban

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SINGAPORE—American workers hold key positions throughout China’s domestic chip industry, helping manufacturers develop new chips to catch up with foreign rivals. Now, those workers are in limbo under new U.S. export control rules that prohibit U.S. citizens from supporting China’s advanced chip development.

At least 43 senior executives working with 16 publicly listed Chinese semiconductor companies are American citizens, according to an examination of company filings and official websites by The Wall Street Journal. Many of them hold C-suite titles, from chief executive to vice president and chairman.

Almost all of the executives moved to China’s chip industry after spending years working in Silicon Valley for U.S. chip makers or semiconductor equipment firms, according to the companies’ filings. Their work histories reflect the free flow of talent across companies and borders over the years. Some were drawn to China through initiatives including the country’s “Thousand Talents” program, which was introduced in 2008 by the Chinese government to boost research standards.

U.S. firms are reshoring at the fastest pace in history, in part, due to the trade war with China and rising tariffs. But that may not translate into a big win for blue-collar American workers. WSJ’s Dion Rabouin explains. Illustration: David Fang

The Commerce Department this month imposed export controls over an array of chips and chip-making technology, marking the U.S.’s biggest salvo against China’s tech industry so far.

In a rare move that caught the industry off guard, it also sought to restrict the use of American know-how by barring U.S. persons from supporting China’s advanced chip development or production without a license. The department defines U.S. persons to include U.S. citizens, permanent residents, people who live in the U.S., and American companies.

Several companies, including Beijing-based

Naura Technology Group Co.

002371 1.39%

and Dutch equipment maker ASML Holding NV, have suspended their American employees from continuing work that could now be restricted while they seek clarity on the rules, the companies have said.

Restricting Chinese companies’ access to U.S. talent delivers a direct blow to the heart of China’s attempt to move up the technology chain, said Dane Chamorro, a Washington, D.C.-based head of global risk and intelligence at business consulting firm Control Risks.

“The technology is nothing without the people there to make it work,” he said.

For many senior executives at Chinese companies, the rule will likely force them to decide between their jobs and their U.S. citizenship or permanent resident status, Mr. Chamorro said. The rules require all U.S. persons to apply for a license to continue working in Chinese advanced chip development.

Among prominent U.S. executives in China is

Gerald Yin,

founder and chairman of

Advanced Micro-Fabrication Equipment Inc.,

or AMEC, one of China’s largest chip-making equipment vendors. He and six current senior managers and core researchers at AMEC are American citizens, according to the company’s website and its latest annual report.

Mr. Yin, whose company is listed on the Shanghai Stock Exchange, spent almost 20 years working at Silicon Valley companies including

Intel Corp.

and

Applied Materials Inc.,

where he was chief technology officer of its Asian unit before he left to found AMEC.

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The Shanghai-based company, which makes etching machines key to turning silicon wafers into semiconductors, is viewed as a rising national champion in the sector, though it still lags behind global leaders such as

Lam Research Corp.

and Applied Materials. In its latest annual report, the company said it received more than $50 million in subsidies from the Chinese government in 2021.

AMEC and Mr. Yin didn’t respond to requests for comment.

Other companies that face being affected include Chinese flash memory chip designer

GigaDevice Semiconductor Inc.,

an up-and-coming designer of flash chips used in automobiles and personal computers. GigaDevice’s deputy chairman, Shu Qingming, and a director, Cheng Taiyi, hold U.S. passports, the company’s latest annual report says.

GigaDevice didn’t respond to requests for comment.

KingSemi Co.

688037 -0.79%

, which produces the most advanced coating and development equipment in China and supplies giants including

Taiwan Semiconductor Manufacturing Co.

TSM -4.05%

, told investors that it is assessing the impact of the new directives. An executive director, Chen Xinglong, holds a U.S. green card, the company’s latest annual report says.

While the withholding of talent—along with all the other restrictions—could significantly slow the Chinese chip sector’s advancement, it won’t be enough to kill it, said Anne Hoecker, a partner at management consulting firm Bain & Co. in its semiconductor group.

“There’s one thing China has been very consistent about—their need to build up an indigenous source of semiconductors,” she said. “They will continue to put a lot of money in it, and they will continue to progress.”

Many companies, including

KLA Corp.

and Lam Research, have already suspended the work of engineers and other less-senior staffers in China while they seek clarity on the rules, or licenses to continue their work, The Wall Street Journal previously reported.

Naura Technology Group, which has a unit making semiconductor equipment, issued warnings to its American employees within mainland China to suspend work with clients that it believes fall under the new restrictions while it awaits more clarity, a spokesman said. Those employees have continued to perform other tasks at the company, he said.

For many American senior executives at Chinese companies, the Commerce Department rule will likely force them to decide between their jobs and their U.S. citizenship.



Photo:

I-Hwa Cheng/Bloomberg News

ASML, the Dutch chip equipment maker, confirmed it sent an internal email to its U.S. employees on Wednesday, asking U.S. staff—both U.S. citizens and foreign nationals living in America—to refrain from servicing, shipping or providing support to any of its customers in China until further notice.

The new rules also could affect employees of Chinese companies that have operations in the U.S. Yangtze Memory Technologies Co., China’s leading memory chip maker, maintains a Santa Clara, Calif., office, with more than a dozen employees in the U.S., according to LinkedIn. They include a director of engineering, the head of U.S. NAND design, and the head of North American sales.

—Raffaele Huang and Rachel Liang contributed to this article.

Write to Liza Lin at Liza.Lin@wsj.com and Karen Hao at karen.hao@wsj.com

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World

EU Likely to Approve G-7 Cap on Russian Oil Price in Two Steps

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BERLIN—The European Union has advanced work on a price cap for Russian oil under an approach that keeps the U.S.-led effort on track but holds off on final approval.

EU member states have agreed on a two-stage approach to the international price cap on Russian oil, which is being developed within the Group of Seven industrial economies. Member states signed off on the legislation needed to implement the measures on Wednesday morning but will hold off approving it until the rest of the G-7 is ready, diplomats and officials said.

The price-cap decision is part of an eighth package of sanctions against Russia over the invasion of Ukraine. The measures will come into effect Thursday morning.

The EU approach reflects concern among some member states about the proposal, which would place a maximum price on what can be paid for Russian seaborne oil. Hesitation is greatest in EU members with large shipping sectors, including Greece, Cyprus and Malta.

The emerging EU approach means the price-cap proposal remains on track to enter into force, but raises fresh questions about how quickly it can be implemented.

Washington has pushed the international oil-price cap as a way of minimizing the Kremlin’s revenue from foreign oil sales without inflating oil prices by preventing oil sales to Asia and Africa. The idea is to set a maximum price at which shippers from G-7 countries may legally transport Russian oil to countries in Asia and Africa. The plan would also permit those companies to buy insurance for Russian oil cargoes, a critical aspect of the shipping industry. The G-7 hopes other countries will join the system.

The G-7 still must agree on the details of the price cap, including the price at which to set the cap, its precise implementation methods and how many other countries they need to join the G-7 in launching the cap. U.S. lawmakers are advocating increasing penalties for foreign buyers who don’t abide by the price cap.

U.S. officials have been flexible about how the other G-7 countries decide to implement the cap.

The EU formally backed the measure at the G-7, but European officials have repeatedly raised concerns about how the mechanism would function and its effectiveness in crimping Russia’s oil revenues.

Greece, Malta and Cyprus have raised concerns that banning EU companies from carrying Russian oil that is sold at rates above the price cap could hurt their economies. They fear losing business to countries that stay outside the mechanism, and they have also raised concerns that some G-7 countries may not enforce the price cap as rigorously as the EU, diplomats said.

At a meeting Tuesday evening, EU ambassadors agreed on a proposal under which they could agree on the legislation, but only formally approve the mechanism at a later date if the other G-7 countries have cleared the way to implement the cap system.

That means the 27 EU member states will need to revisit the three central elements of the price cap proposal. First they would need to sign off an exemption into the June sanctions package that banned EU companies from providing insurance on Russian oil transport after Dec. 5. They would also need to implement a ban on EU shippers transporting Russian oil priced above the cap, and then they would need to sign off on the G-7’s price cap.

The European Union proposed a ban on Russian crude within six months; Moscow and Kyiv accused each other of breaking a cease-fire in Mariupol. Photo: Julien Warnand/Shutterstock

To assuage the concerns of Malta, the ambassadors agreed Tuesday to carry out an impact assessment of the oil price cap mechanism when it enters into force. That will take into account the price cap’s “expected results, international adherence to and informal alignment with the price cap scheme” of non-G-7 countries, according to diplomats. It would also assess its potential impact on the EU.

The European Commission, the EU’s executive body, last week proposed to lay the legal basis for the price cap mechanism as part of a new package of sanctions it was placing on Russia in response to the Kremlin’s claim that it was annexing four regions of Ukraine.

Those sanctions would place an import ban on €7 billion, equivalent to about $7 billion, of Russian sales to the EU and would ban the export to Russia of a number of goods that can be used by its military in the war in Ukraine.

It will also target around three dozen people and companies involved in the latest annexations by Russia of Ukrainian regions.

The EU’s backing for the price cap is critical because the bloc plays a critical role in both the shipping industry and in shipping insurance sector. Sanctions must be approved by all 27 member states.

Under a sanctions package passed in June, the EU agreed to place an oil embargo on Russian seaborne oil by Dec. 5 and, on the same date, ban the provision of services, including shipping insurance, for Russian oil sold outside the bloc. The insurance measure could have choked off oil supplies to Asia and Africa, pushing oil prices higher.

EU diplomats have said that if the G-7 price cap is fully ready and detailed well in advance of Dec. 5, then they can come back and sign off the measures. If the G-7 mechanism is only finalized a few days before the December deadline—or isn’t in place until after it—some member states may demand a transition period to fully implement the measure.

Only Australia has pledged to join the G-7 system. European and U.S. officials say it is unlikely that India, China and some other top buyers of Russian oil will formally participate. Still, U.S. officials hope that by agreeing the price cap, they will at least drive down the price that other countries are willing to pay for Russian oil.

—Andrew Duehren contributed to this article.

Write to Laurence Norman at laurence.norman@wsj.com

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World

Russia’s Vladimir Putin Says China’s Xi Jinping Raised Concerns on Ukraine War

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Russian President

Vladimir Putin

said he sought to address Beijing’s concerns Thursday about the Ukraine war in his first meeting with Chinese leader

Xi Jinping

since the start of the conflict, which has recently brought major battlefield setbacks for Moscow.

Mr. Putin told his Chinese counterpart that Moscow highly values what he called Beijing’s balanced position regarding the Ukraine crisis. He added that the Kremlin would clarify its position on Ukraine, without explaining further.

“We understand your questions and your concerns,” he said, in remarks broadcast on Russian state television from the meeting, which took place at a summit of the Shanghai Cooperation Organization in Uzbekistan.

He also struck out at the U.S. for what he called provocations in Taiwan and said Moscow would adhere to its One China policy, which asserts that the People’s Republic of China is the sole legitimate government of China.

China and Russia have maintained “an effective strategic communication” since the beginning of the year, Mr. Xi said in the meeting, according to state-run Xinhua News Agency.

“In the face of historical changes in the world and times, as major countries, China is willing to work together with Russia to play a leading role and to inject stability into the turbulent world,” said Mr. Xi.

Most notable was Mr. Putin’s public admission that China has concerns about Russia’s war in Ukraine, said

Craig Singleton,

a former U.S. diplomat and a senior China fellow at the Foundation for Defense of Democracies, a conservative think tank based in Washington. He noted that the Chinese government’s official readout of the meeting made no mention of Ukraine, which signaled that Beijing had no intention of increasing its support for Russia, even as Moscow’s war effort stalls.

“China is also rightly concerned that its continued support for Russia’s invasion has badly damaged both Sino-European relations as well as China’s relationships throughout Central Asia, where most countries are on record as being against Putin’s invasion,” he said.

With the world’s second-largest economy and a shared interest in countering the West, China might be Russia’s most important partner as Moscow weathers many international economic sanctions. At their last meeting, just before the start of the war, the two leaders declared that the relationship between the two countries has “no limits.”

At the time, Russia had nearly 200,000 soldiers within striking distance of Kyiv. Since then, Russia’s invading forces have been driven back from the Ukrainian capital and dealt a number of battlefield blows. Last week, a Ukrainian advance routed Russian soldiers in northeastern Ukraine. On the heels of that and other defeats that have raised questions about Russian capabilities, Mr. Putin might need to dial down his expectations for meaningful assistance from Mr. Xi or their Central Asian counterparts.

While China has been an important trading partner for Russia, with Beijing’s oil purchases helping to offset a decline in exports to Europe, Beijing has been careful not to run afoul of Western sanctions. Chinese leaders have said the country isn’t selling weapons to Russia.

As the West scrambles to move away from Russian energy sources and imposes sanctions on Moscow, China and India have stepped in to fill the gap. WSJ examines how those countries have boosted Russia’s revenue from oil sales, supporting its economy. Photo illustration: Sharon Shi

The Russian economy, cushioned by a windfall from high-price energy exports, has defied earlier expectations of a severe recession. Russian officials have significantly revised forecasts, most recently predicting gross domestic product to fall by 2.9% this year compared with a year earlier. Previously the government had said it expected a contraction of nearly 10%.

Still, the outlook remains bleak, economists say, as sanctions on critical imports and an exodus of Western companies are expected to degrade the long-term potential of the economy.

Ahead of the meeting, the Kremlin said that ties between Moscow and Beijing were stronger than they have ever been, and that trade between the two countries this year had risen by a quarter from 2021, when Russian-Chinese bilateral trade hit a record of $140 billion.

The most interesting discussions between China and Russia on Thursday likely took place behind closed doors, said

Alex Gabuev,

senior fellow at the Carnegie Endowment and an expert on Russia-Chinese ties. He said the main thrust of the talks was likely about economic partnerships like Power of Siberia 2, an additional proposed Russian gas pipeline to China, as well as how much Beijing could sell its technology to Russia without triggering sanctions.

Vladimir Putin met with Xi Jinping in Uzbekistan, their first in-person meeting since the war in Ukraine started.



Photo:

Alexandr Demyanchuk/Sputnik/Kremlin Pool/Associated Press

Mr. Putin will need China “to continue to export semiconductors, without which both Russia’s civil but also military industrial capacity cannot continue to operate,” said

Alicia García Herrero,

chief economist for Asia Pacific at Natixis. “This is becoming increasingly difficult due to the U.S. expanding export bans on semiconductors.”

The summit in Samarkand, which concludes on Friday, will include Iran as the ninth member of the regional security bloc founded by China, Russia and Central Asian countries in 2001. The leaders are also expected to issue a declaration on its position on international and economic issues. Such announcements are likely to further fuel U.S. concern about an anti-American axis between the two powers that could threaten Washington’s security and economic interests.

Both Chinese and Russian leaders see U.S. foreign policy as being part of a grand strategy to contain the rise and influence of the two major powers through America’s economic heft and its global network of alliances. They have challenged the U.S.-led international order, saying that America’s democratic system isn’t superior to other forms of governance and that Washington is losing authority in the world.

Beijing sees America’s commitment to defend Taiwan and its support for Vietnam in its maritime disputes as a threat, while Moscow views Washington’s backing for Ukraine and other former Soviet republics such as Georgia as a menace. In their last joint statement issued when Mr. Putin and Mr. Xi met in Beijing in February, they opposed expansion of the North Atlantic Treaty Organization and Washington’s efforts to strengthen its alliances in the Indo-Pacific.

Vladimir Putin sees U.S. foreign policy as part of a strategy to contain the influence of Russia.



Photo:

pavel bednyakov/sputnik/kremlin/Shutterstock

“It is a very useful and important strategic alignment,” said

Raffaello Pantucci,

a senior associate fellow at the Royal United Services Institute, a defense and security think tank. “They are two strongmen who don’t share a language. But they do share a worldview, and they agree on who their main threats and enemies are.”

Nevertheless, China has walked a careful line in its dealings with Moscow to avoid being ensnared in any potential sanctions and alienating other countries, such as those in Central Asia, where China is building economic ties. Kazakhstan, the regional economic heavyweight that shares a border with Russia, has refused to support Russia’s actions in Ukraine, a decision that has boosted tensions between the two countries.

Mr. Xi has a lot at stake in a strategic partnership with Russia, but if he goes too far, he risks damaging relationships with some of the Central Asian countries who are wary of Moscow’s war in Ukraine, said

Evan Feigenbaum,

vice president at the Carnegie Endowment in Washington and a former deputy assistant secretary of state.

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Beijing signed a new railway agreement with Kyrgyzstan and Uzbekistan, China’s Xinhua News Agency reported on Thursday, an ambitious plan to link the Central Asian countries with China that has been under discussion for nearly two decades. Beijing sees the new route as an alternative to its current dependence on a route through Russia and Kazakhstan for overland transit to Europe. That has become even more important in light of the Ukraine war.

“The China-Kyrgyzstan-Uzbekistan railway will link us to Asia-Pacific countries, paving the way for new economic opportunities. It will be a great addition to the existing east-west railways,” Uzbekistan’s president,

Shavkat Mirziyoyev,

said at a May 27 meeting of the Eurasian Economic Union, a Moscow-led trade and economic bloc made up of former Soviet states.

The Central Asians will privately express their discomfort to China if Beijing gets too close to Moscow, said Mr. Feigenbaum.

China has tried to balance those interests by keeping its commitments vague. The country is ready to work with Russia to take the global order in a “more just and rational direction,” China’s top diplomat,

Yang Jiechi,

said in a meeting Monday with Russian Ambassador

Andrey Denisov

in Beijing, without detailing any explicit pledges of support.

—Charles Hutzler contributed to this article.

Write to Keith Zhai at keith.zhai@wsj.com and Thomas Grove at thomas.grove@wsj.com

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Russia to Keep Nord Stream Pipeline Shut, Citing Mechanical Problems

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Russia indefinitely suspended natural gas flows to Europe via a key pipeline hours after the Group of Seven agreed to an oil price cap for Russian crude—two opposing blows exchanged between Moscow and the West in an economic war running parallel to the military conflict in Ukraine.

Kremlin-controlled energy company Gazprom PJSC said late Friday it would suspend supplies of gas to Germany via the Nord Stream natural-gas pipeline until further notice, raising the pressure on Europe as governments race to avoid energy shortages this winter.

Gazprom said it had found a technical fault during maintenance of the pipeline, which connects Russia with Germany under the Baltic Sea. The company said the pipeline will remain shut down until the issue is fixed, without giving any timeline.

The pipeline was due to resume work early Saturday after three-day maintenance. Before the maintenance, the pipeline was operating at 20% of its capacity.

Russia first began throttling supplies via Nord Stream in June, saying that needed maintenance was being prevented by Western sanctions imposed following Russia’s invasion of Ukraine. The notion was dismissed by European officials as an excuse for Russian President

Vladimir Putin’s

regime to use its gas exports to punish Europe for its support of Ukraine.

Western leaders are preparing for the possibility that Russian natural gas flows through the key Nord Stream pipeline may never return to full levels. WSJ’s Shelby Holliday explains what an energy crisis could look like in Europe, and how it might ripple through the world. Illustration: David Fang

A complete shutdown of Nord Stream will compel European governments to accelerate their push to become independent of Russian gas ahead of the winter months and could force them to ration energy—a move that would hurt industrial companies and tip the continent’s already fragile economy into a recession.

“By further reducing gas deliveries, Russia is tightening the screws on the EU,” said Janis Kluge, an expert on Russia at the German Institute for International and Security Affairs. “Europe will now have to take its efforts up a notch to conserve more gas.”

At the same time, the move deprives Moscow of its most potent economic leverage on the continent and could remove any remaining misgivings in European capitals about raising sanctions on Moscow for fear of retribution.

“Until it is repaired, gas transport via Nord Stream is completely stopped,” Gazprom said Friday.

Moscow and the West have been engaged in an economic war since Russia invaded Ukraine in February. Western democracies have inflicted economic and financial sanctions on Russia, and Moscow has tried to choke unfriendly countries’ access to its natural gas, which Europe uses for heating and electricity production.

ArcelorMittal SA,

one of the world’s largest steelmakers, was the latest industrial giant to say it is reducing European production capacity amid the energy crisis. The company said Friday it will close two of its plants in Germany amid soaring electricity costs.

Steelmaking is particularly energy intensive, alongside other industries like fertilizer and chemical production and glass making.

G-7 countries said on Friday they would impose a cap on the price of Russian oil. The mechanism would force buyers seeking to insure their shipment via insurers located in a G-7 or European Union country to observe the price limit on their purchases. The cap, whose level will be set at a future meeting, originated in a U.S. initiative and has been under discussion for months.

Russia has said countries imposing a cap wouldn’t receive any Russian oil. Sales of oil make up a far bigger share of Russian state revenues than sales of natural gas.

Inspectors from the United Nations’ nuclear agency visited the Russian-occupied Zaporizhzhia nuclear-power plant, despite shelling near the facility for which Ukraine and Russia exchanged blame. On Friday, Ukraine accused Russia of hindering access to the plant. Photo: Yuri Kochetkov/Shutterstock

Hours before Gazprom’s Nord Stream announcement, German Finance Minister

Christian Lindner

praised the G-7 decision, saying “Russia is generating big profits from the export of commodities such as oil, which is something we must push back on vigorously.”

The cap, he added, would help combat inflation in the EU.

Russia would have enough capacity via other gas pipelines to Europe to compensate for the Nord Stream shortfall. However, flows via these other routes declined following the start of the war in Ukraine.

Ukraine halted one gas-transit route in May, blaming interference by Russian forces. Deliveries through another, called Yamal, which traditionally transported gas from Russia to Europe, have stopped this year due to sanctions imposed by Russia on the Polish part-owner.

Germany’s economy minister,

Robert Habeck,

said this week that the country can’t count on Nord Stream during the winter.

In reaction to the Nord Stream closure, a spokeswoman for the ministry said on Friday that Germany was far better prepared than a few months ago.

“We have already seen Russia’s unreliability in the past few weeks, and accordingly we have unwaveringly and consistently pursued our measures to strengthen our independence from Russian energy imports,” the spokeswoman said.

Klaus Müller, head of Germany’s energy regulator, said the country would need to boost gas imports from other suppliers, continue to fill up gas stores and cut gas consumption.

European officials had expected that the Kremlin would use gas flows to keep markets and governments on edge and erode support for Ukraine among Western voters.

Gazprom’s shutting down of Nord Stream “under fallacious pretenses is another confirmation of its unreliability as a supplier,” European Commission spokesman Eric Mamer wrote on Twitter.

A senior manager of a German gas company formerly controlled by Gazprom said Friday that he expects local importers of gas channeled via Nord Stream to stop paying for their contractual obligations with Gazprom.

Natural-gas prices have broken records in recent weeks amid the energy crunch, though they have also dropped sharply in the past days, with some analysts crediting the speed at which Europeans have been filling up their gas storage facilities through the summer.

Goldman Sachs analysts said that the Nord Stream outage would cause prices to surge again. The Gazprom decision “will reignite market uncertainty regarding the region’s ability to manage storage through winter, driving a significant rally,” the bank said in a note to clients.

Gazprom began throttling gas flows in June, citing technical problems with the turbines. The company insists that a key turbine couldn’t be sent to Russia after it was maintained in Canada because of international sanctions on Moscow. But Germany, where the turbine was located, said that there are no obstacles, and that Moscow was in fact blocking the turbine’s return to Russia.

On Friday, Gazprom said that it found an oil leak in a turbine at the compressor station of the pipeline. Gazprom said that similar issues had been found with other turbines this summer that have led to the reduction of the gas flows.

Gazprom said it had notified German company

Siemens Energy AG

, which maintains the turbines, of the new leak. Gazprom said that the necessary repairs could only be done in a specialized repair facility. Previously, some turbines for the pipeline had been repaired by Siemens Energy in Canada.

Siemens Energy said that Gazprom’s announcement wasn’t a technical reason for stopping operation. “Such leakages do not usually affect the operation of a turbine and can be sealed on site. It is a routine procedure during maintenance work,” the company said. It said it wasn’t currently contracted for maintenance work but is ready to assist.

Europe has been preparing for a possible Russian gas cutoff, with EU gas- storage facilities filling up faster than expected this summer, to over 80%.

Still, if Nord Stream remains shut, Europe’s gas stores would end the winter at 26% of their capacity, which would complicate Europe’s situation next winter, Massimo Di Odoardo, vice president for gas and liquefied natural gas research at energy consulting firm Wood Mackenzie, wrote this week.

Germany, which received more than half of its gas from Russia before the war in Ukraine, has been racing to diversify its supply of gas and to install floating liquefied natural gas terminals to ship in gas from the U.S. and elsewhere. In recent months, Germany’s gas imports from Norway, Belgium and the Netherlands have far outweighed the reduced Russian flows.

The country is close to hitting its 85% gas storage target, initially set for Oct. 1. German officials, however, have warned that reaching the next milestone of 95% by Nov. 1 would be challenging unless companies and households cut consumption.

The 760-mile-long Nord Stream pipeline first opened in 2011. Russia and a consortium of European energy companies built a second pipeline, Nord Stream 2, running alongside the original one, that would have doubled capacity. But the German government froze the project in February over the war in Ukraine.

—Bojan Pancevski contributed to this article.

Write to Georgi Kantchev at georgi.kantchev@wsj.com and Andrew Duehren at andrew.duehren@wsj.com

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World

Russia Resumes Nord Stream Natural-Gas Supply to Europe

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BERLIN—Russian natural gas began flowing again at a reduced volume through a critical pipeline into Europe on Thursday, according to its operator, buying time for governments to decouple from the Kremlin’s exports amid what they expect will be an increasingly unreliable supply of energy from Moscow heading into the winter.

The Nord Stream pipeline connecting Russia with Germany under the Baltic Sea resumed operation after its annual maintenance, ending 10 days of tense speculation about whether President

Vladimir Putin’s

regime would cut off the gas flow to Europe in retaliation for Western sanctions after his invasion of Ukraine.

The operator, Nord Stream AG, said the pipeline was in the process of restarting, which would take a few hours. “Gas is flowing,” a spokesman for the operator said.

The spokesman said flows are expected to be at pre-maintenance level of around 40% of total capacity, but it would take a few hours to reach that volume. One of the German network operators, NEL Gastransport GmbH, later said Thursday that this volume of gas was currently flowing through the pipe, as also confirmed by Nord Stream’s own online monitoring tool.

The German energy regulator said gas flows could reach 40% of capacity Thursday.

“Unfortunately, the political uncertainty and the 60% cut from mid-June remain,” the regulator’s head, Klaus Müller, said on Twitter.

The restart sent wholesale European natural-gas prices down 5% Thursday to €154.55, the equivalent of about $157.50, a megawatt-hour. Including Thursday’s fall, prices have fallen by 14% over the past week but have more than doubled this year and are more than four times as high as 12 months ago. The rally has propelled electricity prices to historic highs across Europe. Broader financial markets were steady Thursday as investors awaited earnings reports from major U.S. companies and an expected interest-rate increase by the European Central Bank.

A compressor station in Mallnow, Germany.



Photo:

filip singer/Shutterstock

The pipeline has been operating below capacity since Russia began throttling supplies in June, invoking technical issues related to Western sanctions against Russia.

Mr. Putin earlier this week said Russia would meet its contractual obligations for gas deliveries to Europe. The Nord Stream pipeline is the main conduit for Russian gas into Europe. Mr. Putin also warned that Western sanctions adopted to punish Russia in the wake of the invasion could cause further disruptions and cap pipeline volumes as low as 20%.

European officials and executives had worried the pipeline might not restart at all, or do so at even lower volumes. While gas is now flowing again, how much Russia sends—and for how long—will be closely watched by European capitals, who are in the midst of filling reservoirs for the higher-demand winter just a few months away.

An abrupt cutoff would have pushed Germany, Europe’s largest economy and industrial powerhouse, and several of its neighbors into a severe recession, according to most economists. But even reduced flows and the uncertainty regarding future supplies mean governments may still be forced to ration energy and subsidize mounting costs for households, experts and officials say.

Nord Stream channels gas extracted from Siberia by state-controlled Gazprom PJSC.

Mr. Putin this week blamed the drop on the absence of a turbine that had been held up in Canada after undergoing repairs because of Western sanctions, but is now on its way back to Russia.

Berlin and most Western experts said the cut in supplies was an attempt to pressure the West into easing sanctions and to push up gas prices. Several German officials and a Gazprom manager in Europe told The Wall Street Journal that Nord Stream had an elaborate contingency system with at least one spare turbine available at all times.

German officials say they expect the pipeline to continue to operate at its reduced pre-maintenance capacity—a level they think was deliberately set to prevent Germany and others from building up enough gas reserves for the winter. Because of technical reasons related to the pressure levels in the pipeline, Nord Stream can’t transport volumes below 30% of its capacity of 55 billion cubic meters a year.

A German government minister said that Mr. Putin was deliberately causing anxiety in the global energy markets, but that he was unlikely to sever supplies completely because it would remove his leverage and risk a harsher response from the West.

The reduced flows and uncertainty are already hitting Germany’s economy. The largest gas utility,

Uniper SE,

is in bailout talks with the German government. The company said Monday that it had drawn down a €2 billion, or $2.04 billion, credit line with German state-owned KfW bank. A German Economy Ministry spokesperson said Monday that the government was working with Uniper and its Finnish parent,

Fortum Oyj,

to find ways to help the company.

Germany and other European Union nations, which pledged to end purchases of Russian energy by 2024, are now working on two basic contingency plans.

The Nord Stream pipeline has been operating below capacity since Russia began throttling supplies in June.



Photo:

Markus Schreiber/Associated Press

The first envisages a status quo, with Nord Stream operating at around 40% of its capacity. Under that scenario, Germany, where gas storages are currently 65% full, would have to significantly reduce consumption compared with the previous year to avoid a shortfall in the winter. Some regions, however, are expected to be more severely affected, possibly triggering local measures such as limited factory shutdowns and a cut in supply to some businesses.

Under this scenario, Germany would be unable to completely fill its reserves before year-end, leaving the country vulnerable to new surprise supply cuts and keeping energy prices high.

This could be politically explosive for Berlin, with some 66% of Germans currently feeling that the government isn’t doing enough to tackle high energy prices, while 53% believe the sanctions are hurting Germany more than Russia, according to a Forsa poll published on Wednesday.

“We need to prepare for a war economy…the next two winters will be difficult,” said

Günther Oettinger,

a former chief energy official of the EU and German politician. “Our very democracy is in danger of disruption from the energy costs fallout.”

The second scenario, seen in Berlin as less likely according to German officials, foresees an end to Russian gas supplies before the end of the year, triggering an emergency plan that would allow Chancellor

Olaf Scholz

to take control of the gas market and ration consumption.

Under legislation that protects households and critical infrastructure, rationing would hit mainly businesses, leading to a drop in Germany’s gross domestic product of between 5% and 6% in 2023, according to estimates by

Deutsche Bank.

With many European countries that depend on Russian gas reliant on supplies transiting through Germany, irregular or dwindling supplies through Nord Stream would have effects across the continent.

The EU this week issued guidelines recommending measures to cut gas consumption by 15% between August 2022 and March 2023, including by limiting the temperature in office spaces to 66 degrees this winter.

Germany’s immediate neighbors are working on their own contingency plans.

Germany and Austria negotiated a deal to share their gas-storage capacity and help each other’s regions that are at risk of fuel shortages.

“Russian dictator Vladimir Putin is using energy as a weapon against us. It is clear that the cooperation with Germany, through which almost all gas flows to us, will be essential for us in this direction,” Josef Sikela, the minister of industry and trade of the Czech Republic, told reporters earlier this month.

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Europe is also adjusting its gas infrastructure, which has so far been largely geared to receive supply from Russia. Belgium and Germany are working to expand the capacity of a pipeline connecting the two nations, while Austria and Italy are looking into importing their infrastructure to be able to channel more Norwegian gas into their storage.

The Netherlands, once among the world’s largest gas producers, is considering temporarily prolonging the life of a gas field scheduled for closure after mining work there caused numerous earthquakes.

Many governments are trying to secure gas from other suppliers, from Norway to Algeria, the U.S. and Qatar, which often comes in the form of liquefied natural gas transported by ship.

Germany is building several LNG terminals on its coast to receive shipments from faraway countries and has chartered five floating terminals that can handle those inflows in the short term. Increased LNG purchases by EU nations—Germany alone is investing over €15 billion—have caused a shortage on the global market, leaving countries such as Pakistan struggling to access supply.

Berlin, meanwhile, has said it would review its decision to shut down its three remaining nuclear-power plants. It is already planning to increase use of coal to produce electricity this winter to save gas for heating.

Write to Bojan Pancevski at bojan.pancevski@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com

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Vladimir Putin Says Russia Will Honor Gas Commitments, but Warns of New Nord Stream Curbs

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Russian President

Vladimir Putin

said Russia would fulfill its commitments to supply natural gas to Europe but warned that flows via the Nord Stream pipeline could be curbed soon if sanctions prevent additional maintenance on its components.

Nord Stream, the main artery for Russian gas to Europe, is currently down due to regular maintenance and European governments are worried the Kremlin won’t restore its flow when the work ends Thursday. A prolonged outage could prompt governments to ration energy, hurting industry and hitting already fragile economic growth.

In comments late Tuesday after his visit to Tehran, Mr. Putin said that Kremlin-controlled energy exporter Gazprom PJSC, pipeline operator’s majority shareholder, “has always fulfilled and will fulfill all of its obligations.”

But the Russian president added that flows might fall to some 20% of capacity as soon as next week if a pipeline turbine that was undergoing repairs in Canada isn’t returned to Russia soon. Mr. Putin said that another turbine had to go for maintenance on July 26.

Even before the maintenance began, Gazprom last month cut deliveries on the pipeline to 40% of its capacity, blaming Canadian sanctions that had prevented the return of the turbine being repaired there. European officials have dismissed the turbine explanation as a pretext for Moscow to try and wreak economic havoc on the continent.

Germany has been racing to return the turbine to Russia after Canada earlier this month tweaked its own sanctions, allowing turbines for the Nord Stream pipeline to be repaired and returned to Russia.

The European Union is pressing governments to step up their energy-conservation campaigns, rolling out new plans for possible rationing on Wednesday. The commission’s plan is expected to offer guidelines for curbing energy use and establish criteria governments can use to determine which industries to give priority to if there isn’t enough gas to go around. The guidelines also call for public buildings to limit air conditioning to 77 degrees Fahrenheit and cap thermostats at about 66 degrees during colder months.

Gazprom has invoked force majeure for its failure to deliver contractually agreed natural-gas shipments in recent weeks, according to European energy companies. It isn’t clear whether the notice—a legal declaration that exempts the company from fulfilling contractual obligations because of circumstances outside its control—covers a potential decision by Russia not to resume Nord Stream flows after the maintenance.

While some European officials have in recent days cast doubt on whether Nord Stream would come back online on Thursday, Mr. Putin’s comments helped fuel expectations the pipeline would restart. Separately, flows of gas through the pipeline spiked several times on Tuesday, which analysts say could be pressure tests ahead of the end of the maintenance.

Analysts at Goldman Sachs said they expected the pipeline to come back online Thursday at its pre-maintenance capacity of 40%.

A full stop “would remove flexibility from Russia’s supply decisions, once you’re at zero, there’s only one place to go: up,” the bank wrote in a note to clients on Tuesday, adding that such a scenario would also deprive Russia of gas revenues.

But Mr. Putin’s new warning that the flows could be curbed to 20% next week shows that Moscow will continue to use gas to squeeze Europe, even if it doesn’t completely cut it off, analysts say.

“It’s absolutely clear that Moscow is cutting supplies for geopolitical reasons—it wants to create a European gas crisis this winter to bring Europe to its knees to the point where it cuts support to Ukraine and forces Kyiv to concede to Moscow’s demands,” said Timothy Ash, senior strategist for BlueBay Asset Management LLP in London.

Mr. Putin also warned the West that its plan to cap the prices of Russian oil would rock global markets and push prices up.

“Now we are hearing all sorts of crazy ideas about limiting the volume of Russian oil and capping the Russian oil price,” Mr. Putin said. “Oil prices will skyrocket,” he added.

Write to Georgi Kantchev at georgi.kantchev@wsj.com

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Chinese Firms Are Selling Russia Goods Its Military Needs to Keep Fighting in Ukraine

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BEIJING—Chinese exports to Russia of microchips and other electronic components and raw materials, some with military applications, have increased since Moscow’s invasion of Ukraine, complicating efforts by the U.S. and Western allies to isolate the country’s economy and cripple its military.

Chip shipments from China to Russia more than doubled to about $50 million in the first five months of 2022, compared with a year earlier, Chinese customs data show, while exports of other components such as printed circuits had double-digit percentage growth. Export volumes of aluminum oxide, which is used to make the metal aluminum, an important material in weapons production and aerospace, are 400 times higher than last year.

The rise in reported export values may partly be explained by inflation. But the data shows that many Chinese tech sellers have continued to do business with Russia despite U.S. scrutiny.

The Chinese exports, while just a sliver of the country’s overall exports, are a source of concern for U.S. officials. The Commerce Department added five Chinese electronics companies to a trade blacklist last month for allegedly helping Russia’s defense industry, both before the invasion and after it began.

“Our government and our national leadership has been very clear from February 24th on that China should not provide material, economic and military support for Russia in this war,”

Nicholas Burns,

the U.S. ambassador to China, said last week.

The Commerce Department said in a written response that while it didn’t believe China had sought to systematically evade U.S. export controls on Russia, it was closely monitoring trade between the countries and “will not hesitate to employ our full legal and regulatory tools against parties that provide support to the Russian military.”

The China-Russia trade in chips and other components with potential military applications involves both small, private outfits and sprawling state-owned enterprises. Incomplete data and complex networks of subsidiaries and middlemen make it hard to trace all the activity.

Chinese officials have said the country isn’t selling weapons to Russia. And overall exports from China to Russia have fallen substantially this year as many Chinese companies fear running afoul of the U.S.

With fireworks and fanfare, China and Russia opened a new bridge for freight traffic that links the two countries. As Russia’s isolation grows following its invasion of Ukraine, China is willing to keep their partnership going but not at any cost. Photo: Amur Region Government/Zuma Press

China’s support, broadly speaking, is critical to Moscow. Oil and gas revenues make up a sizable chunk of Russia’s economy. As European nations such as Germany seek to draw down Russian energy purchases, Russian President

Vladimir Putin

has stressed the importance of selling far more energy to China and others in Asia in the future.

China is also gaining leverage in its relationship with Russia. While China historically has relied on Russia, and before that the Soviet Union, for many advanced technologies, that is gradually changing as China closes the technology gap and emerges as a defense exporter in its own right.

Chinese leader

Xi Jinping

has repeatedly reaffirmed Beijing’s support for Russia, saying the two countries share a friendship with “no limits.” 

A shared dissatisfaction with the U.S.-led post-World War II international system has gradually driven the countries together during Mr. Xi’s decade in power, despite a long history of strategic mistrust.

A trade fair for semiconductor technology in Shanghai. The China-Russia trade in chips and other components with potential military applications involves both small, private outfits and sprawling state-owned enterprises.



Photo:

aly song/Reuters

Researchers at C4ADS, a Washington-based nonprofit organization that tracks security threats, have been looking at trade between Russian defense firms and China Poly Group, a conglomerate controlled by China’s central government.

Poly’s subsidiaries include a key Chinese weapons producer and exporter of small arms, missile technology and, more recently, antidrone laser technology.

Between 2014 and January 2022, C4ADS researcher Naomi Garcia identified 281 previously undisclosed shipments of so-called dual-use goods, which have both civilian and military uses, from Poly subsidiaries to Russian defense organizations, she writes in a report to be released Friday.

In one of the most recent shipments, in late January, according to the research, Poly Technologies sent antenna parts to sanctioned Russian defense company Almaz-Antey. Ms. Garcia said she hasn’t discovered Poly shipments to Russian defense firms since the Ukraine invasion began in late February.

Russian customs records reviewed by C4ADS say the antenna parts were specifically to be used in a radar that is part of Russia’s advanced S-400 surface-to-air missile system. Russian media, citing the country’s Defense Ministry, has said the S-400 system has been used in the Ukraine war.

“Poly Technologies is undeniably facilitating the Russian government’s acquisition of missile-system parts,” Ms. Garcia said.

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Poly Technologies was sanctioned by the State Department in January for engaging in proliferation of missile technologies. A State Department spokesperson said the sanctions were related to the company’s transferring of ballistic-missile technology to another country, but didn’t name which country.

Poly didn’t reply to a faxed request for comment and an official in its press office hung up when asked about its work with Russia. Almaz-Antey, Russia’s Ministry of Economic Development and Ministry of Industry and Trade didn’t respond for comment.

Beyond radar components and semiconductors, Chinese exporters also have helped fill a gap in basic materials that Russia is restricted from sourcing elsewhere.

In March, Australia prohibited the export of aluminum oxide and several other related products, citing their use in weapons development. Since then, Chinese exports of aluminum oxide to Russia have surged, hitting 153,000 metric tons in May, according to Chinese customs records, compared with 227 metric tons in the same month the year before.

Unlike state-owned conglomerate Poly, the Chinese companies that were targeted most recently by the Commerce Department are small, private hardware distributors run out of Hong Kong and China’s southern province of Guangdong. While there is relatively little information about the size of business they do with Russia, some of the companies named by the U.S. openly advertised their defense work.

One of the firms, Winninc Electronics Co., previously said on its website that it was a top distributor “for industrial, military, aerospace, and consumer electronics manufacturers worldwide.” That language has since been removed. “Hope we can get through this,” the website now says.

Another of the targeted companies, Sinno Electronics Co., also until recently said on its website that it was a “cooperative partner” of publicly traded U.S. hardware manufacturers including

Texas Instruments Inc.

and

Analog Devices Inc.

Texas Instruments didn’t respond to requests for comment. Analog Devices said it isn’t a partner of Sinno. It added that it had instructed its distributors to cease business with the company after the Commerce Department’s decision to blacklist it.

Sinno didn’t respond to a request for comment. A person who answered the phone at Winninc said the company wasn’t informed about the U.S. decision before it was made public but declined to comment further.

Maria Shagina, an expert on Russia sanctions at the International Institute for Strategic Studies in Berlin, said the latest action against the Chinese companies appeared to be intended to show that U.S. threats were credible, particularly considering how smaller companies may be better able to circumvent export controls than bigger ones.

“While the U.S. and its allies failed at deterrence with Russia, it’s important to prevent China early enough from systematically helping Russia,” she said.

Write to Brian Spegele at brian.spegele@wsj.com

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