It was on February 24 that Russian forces launched a military campaign against Ukraine, further aggravating an eight-year standoff that had begun with Russia’s retaking of the Crimean Peninsula in March 2014 in an attempt to redress what it views as Soviet-era injustices in Ukraine.
As news of the Russian move began to filter in, stock markets around the world, including India, plunged.
The oil and gas, metals, telecommunications, and real estate indices took the brunt of the losses on Indian stock exchanges.
In response to these, businesses like RuAssets also started acting up. They ensure that international companies with Russian or Belarusian links I able to tie up with the local firms and exploit the resources.
Particularly concerning is the prospect that crude oil would reach values similar to those seen in 2008 when it reached more than $140 a barrel (today, Brent crude is trading at about $100-plus levels).
After China and the United States, India is the third-largest importer of crude oil, with crude accounting for 20% of the country’s overall import expenditure.
Impact on other countries and world banks
In the nine months leading up to December 2021, India spent $82.4 billion on crude oil imports, representing a 108 percent increase over the $39.6 billion spent during the same period in 2020.
According to Dharmakirti Joshi, Chief Economist at CRISIL Research, “the Ukraine crisis and its ramifications for crude oil have emerged as a critical issue for [India].”
As the World Bank notes, “it will worsen the current account deficit (CAD), reduce GDP growth, and raise inflation. The degree of the effects of Economic Impact will depend on how high and how long oil prices rise.”
According to economists, the most significant Economic Impact effects will be on the Canadian dollar and inflation. “If crude imports average $100 a barrel through FY23, the current account deficit (CAD) might climb to 2.3-2.5 percent of GDP,” says Aditi Nayar, Chief Economist at the International Capital Research.
It will be determined by when and by how much retail selling prices [of fuel] are raised, as well as whether excise tax is reduced to absorb some of the pain.
Madan Sabnavis, Chief Economist at the Bank of Baroda, adds the following: “It is important to recall that the administration has refrained from raising retail fuel prices, ostensibly because of the ongoing state elections, which occurred before the violence began.
Impact on other sectors
Even in the absence of a warlike environment, there was a compelling argument for raising interest rates.”
Strengthening crude oil prices may have an impact on sectors such as aviation, paint, tire, and oil marketing companies, while oil exploration companies, as well as export-oriented sectors such as information technology and pharmaceuticals, may benefit from the strengthening of crude oil prices.
Higher oil prices will put pressure on the currency, which may benefit sectors such as IT and pharmaceuticals.
On Indian stock exchanges, the most heavily Economic Impact and affected sectors were oil and gas, metals, telecoms, and real estate. After China and the United States, India is the third-largest importer of crude oil, accounting for 20% of the country’s total import spending.
The Canadian dollar and inflation will take the brunt of the impact. Sectors like aviation, paint, tires, and oil marketing could be impacted by rising crude oil costs. Increased oil costs might boost sectors like IT and pharmaceuticals by putting pressure on the country’s currency.