Russia-Ukraine Invasion- Impact on India

February 26, 2022

On February 24, 2022, Russian President Vladimir Putin announced a military operation in Ukraine, which was termed as “full-scale invasion” by Ukrainian foreign minister.

Highlights

  • US President Joe Biden called this move of Russia “an unprovoked and unjustified attack”.
  • The US & its allies have been responding to Russian invasion by imposing sanctions on Russia.

Impact on Global Markets

  • Global markets also reacted in kind to ‘demilitarisation and denazification’ of Ukraine.
  • Major indices are trading in a deep sea of red.
  • Gold hit the highest since early 2021.

Impact on Energy

As a result of invasion, Crude oil prices have increased to 7-year high. Brent oil prices increased above USD 100 a barrel for the first time since 2014. Russia is a key supplier of energy, worldwide. Europe relies on Russia for about quarter of its oil supplies as well as third of its gas. According to JPMorgan Chase & Co, oil prices are likely to average USD 110 a barrel in second quarter because of Russia-Ukraine crisis. China is the largest single customer for Russia’s oil exports. While Asia and Oceania accounts for 42% of total crude oil of Russia. In 2020, China was the largest importing country of Russia’s crude oil and condensate, at 31%. It is likely that, oil would come to market, but due to geopolitical risks will keep the prices at high levels.

Impact on India

According to Finance Minister Nirmala Sitharaman, Russia-Ukraine tension and increase in crude oil prices pose risk to financial stability in India. India accounts for less than 1% share of Russia’s crude oil exports. This is because most Indian refineries cannot process heavy crudes that Russia exports. Higher crude oil prices will result into higher CPI inflation for longer.  Furthermore, as European Union is the biggest market for India’s exports, there will be supply disruptions there and a greater demand for steel, engineering goods, etc. for which India is an alternate supplier.

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