Even though India does not have direct links with Ukraine, Russia’s military operation could hurt us.
To begin with, International oil prices surged to over a seven-year high of USD 103 a barrel on Thursday. However, as of now, supply lines to India remain unaffected. For consumers, the spike in global oil prices will not have any direct bearing just yet as state-owned fuel retailers continue to hold petrol, diesel and LPG rates. But if there is indeed a disruption and the US imposes additional sanctions, it will have a major impact on India, which is a big importer of oil.
Gold prices also rose sharply as investors sought a safe haven amid volatility. Many investors may move a part of their financial savings into gold since there is a risk of an underperformance of the equity markets in such a tense geopolitical scenario. Besides, there is a possibility of rise in inflation, which is expected to further pressurise the economy.
Motilal Oswal Financial Services Head (Retail Research) Siddhartha Khemka observed that any reaction from the NATO/US armies would only worsen the situation further. “We advise traders to remain with negative bias while investors need to keep calm and patience to tide over the current situation,” he observed.
Acuité Ratings & Research Chief Analytical Officer Suman Chowdhury said crude oil prices are likely to stay above $100 over the near term. “Clearly, this will have an impact on the domestic inflationary scenario where there are already significant undercurrents due to increasing pass-through of higher commodity prices with improving demand in manufactured products and even services. While the government can partly alleviate the pressures through a further cut in excise duties of retail fuels, input costs are set to increase further for sectors such as paints, chemicals, plastic products, transport and aviation in the near term,” he noted.
Apart from a potential impact on monetary policy and interest rates, it is also likely to have an adverse impact on the rupee through higher trade deficit and higher capital outflows, said Chowdhury.
According to CRISIL Research Director Hetal Gandhi, over the past three months, OPEC members haven’t been meeting their production targets, which has influenced prices. “The upshot is energy and trade-deficit negative for India, since we import nearly 85 per cent of our crude oil requirement,” she said.
“The Russia-Ukraine war will have a big bearing on global natural gas markets, since Russia produces approximately 17 per cent of it and has a 25 per cent share of total gas exports. Thankfully, India’s gas requirements are locked in contracts with Qatar, the supply of which is unlikely to be affected if the war doesn’t spill over. However, the impact of higher gas prices would be felt in India, just like everywhere else,’’ noted Gandhi. However, she predicted that spot LNG prices, which averaged $27-30 per mm BTU in January 2022, could rise to $35-40 if the strife continues.
Moreover, the war will also heavily impact India’s import of sunflower oil from Ukraine. Of the total sunflower oil import of 1.89 million tonnes in 2021, as high as 70 per cent was from Ukraine alone while 20 per cent from Russia and the remaining 10 per cent from Argentina.
“India imports about two lakh tonnes per month of sunflower seed oil and at times, this goes up to three lakh tonnes per month. India is dependent on edible oil imports to the tune of about 60 per cent. Any global development will have an impact,” said Indian Vegetable Oil Producers’ Association President Sudhakar Desai.
Sensex tanks over 2,700 pts
Equity benchmark Sensex crashed over 2,700 points on Thursday following a severe sell-off in global markets. Investor wealth worth over Rs 13.44 lakh crore was wiped off in the market mayhem. Market benchmarks in Europe and Asia fell by more than 4% as traders tried to figure out how large Putin's incursion would be and the scale of Western retaliation. The rouble sank 7.5% against the dollar
