How The Ukraine-Russia Conflict Impacts Indian Economy


Ukraine and Russia are on the brink of war. Russia has positioned nearly 100,000 troops on its border with Ukraine. Ukraine is backed by the US and some other western countries. This is one of the most gripping international crises since the cold war. Ukraine's President Volodymyr Zelenskyy even announced publicly that Russia would invade Ukraine on February 16, 2021.

Ukraine has several internal pro-Russia separatist forces that have waged war against Ukrainian troops, while Russia denies supporting these forces. Russia intends to weaken Ukraine’s military and diplomatic clout through its demands, such as taking off NATO support to Ukraine. The situation is getting worse by the day and global tensions are rising.

In the Russian-Ukraine crisis, taking sides could prove a diplomatic mishap for countries like India. While India has had an excellent relationship with Russia since the formation of the USSR, it has excellent bilateral relations with Ukraine as well. It is a sensible move for India not to opine in a conflict that wouldn't do any good for the country.

In this piece, we explore the possible impact of the entire conflict on the Indian economy. 

Sunflower Oil Prices Could Touch Roof

Russia and Ukraine are the largest exporters of sunflower oil in the world. India imports most of its oil from these two countries. India’s edible oil prices have risen by around 60% in the past year. In India, sunflower oil isn’t consumed as much as Palm or Soya oil, yet it remains the largest importer of sunflower oil in the world. A price increase could hit many kitchens in the subcontinent.  

Defense and Military Equipment Could Take A Hit

According to Stockholm International Peace Research Institute (SIPRI), Russia is the largest exporter of arms and military equipment in the world, where the most significant proportion of exports are to India. The US could impose sanctions on Russia and those in ‘support’ of the ‘aggressor’. It could possibly build pressure on India to taper its trade, military, and diplomatic relations with Russia. India has had good ties with both the US and Russia. Choosing between the two could be a tedious task. 

Inflation and Oil Prices Could Rise

US Crude Oil prices hit a record high of $95.82 a barrel, while Brent Crude hit $95.75 when the Russia-Ukraine crisis was at its peak. The price contracted when Russia announced that it was withdrawing some of its positions on line with Ukraine. India has signed many deals with Russia to buy oil and gas. GAIL has signed a 20-year deal with Russian state-owned energy company Gazprom to buy 2.5 million tonnes (MT) of LNG a year. Indian Oil Corporation has signed a deal to buy up to 2 MT of oil from Russia's Rosneft.

Moving on, the COVID-19 stimulus has sent inflation skyrocketing across the globe. India is on the same boat as any other country. High excise duties and an increase in oil prices could eat into the pockets of many households. 

Volatility In Indian Markets

Both NIFTY and SENSEX have gone haywire amidst the Ukraine-Russia conflict. On Valentine’s Day, NIFTY had the biggest fall in 10 months, where NIFTY lost 532.95 points or 3.06% at 16,842.8 and SENSEX lost 1747 points or 3.00% at 56,406. India VIX is an indicator of volatility in markets. We see a sudden spike in VIX after Feb 10, which could be because of the Ukraine Russia conflict and other market forces. 

Source: TradingView

What Lies Ahead

In today’s times, diplomacy isn’t led by a particular ideology but by a nation’s selfish interests. Nobody knows what’s going on in Putin’s mind. US President Joe Biden has agreed ‘in principle’ to meet Putin if he agrees to not attack Ukraine. The diplomatic gambit was brokered by French President Emanuel Macron. It is expected that the two might discuss terms on various issues like NATO, OPEC oil price, etc.

On Feb 21, Putin ordered Russian troops to “maintain peace” in two separatist-held regions in eastern Ukraine. He recognised the cities of Donetsk and Luhansk as independent entities. This move has been met with widespread criticism from the West due to fears that it could provide a pretext for a Russian invasion of Ukraine.

In a swift response, the US imposed economic sanctions on the two regions. The order restricts new investment, trade, and financing by US persons to, from, or in Donetsk and Luhansk. Meanwhile, Ukrainian President Volodymyr Zelenskiy has accused Russia of wrecking peace efforts and violating the sovereignty and territorial integrity of his country.

The world isn’t truly polarised like it was during the cold war. While the conflict can impact India’s military ties with the US and Russia if the matter intensifies, India does not face any long-term economic risk. India has strengthened ties with other nations to fulfill its economic necessities if it falls on bad terms with either the US or Russia. Moreover, it could be in the best economic and diplomatic interest for both Russia and the US to maintain ties with India.

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