Rising Fuel Prices, Inflation: How Russia's Invasion of Ukraine Could Hit India

Brent crude shot up to a record-high price of $105 a barrel – the highest since 2014, reported TOI.

Image used for representational purposes.

(Photo: Altered by The Quint)

The Russian invasion of Ukraine has created a tense global climate – the likes of which have not been seen since the Second World War.

The prevailing uncertainty over a possible full-scale war, especially since Russian President Vladimir Putin declared the 'special military operation' (read invasion) on Thursday, 24 February, has led stock markets across the world into a downward spiral.

Stocks have crashed to record lows over the last few weeks, turning retail investors pessimistic and markets wary.

According to Bloomberg, India is expected to suffer the biggest blow to economic growth, pulling it down by 0.2 percentage points.

Oil Prices Soar

Global energy supply has taken a sharp hit due to the ongoing tensions. As per latest reports, the price of brent crude oil has shot up to a record $105 a barrel – a seven-year high that has not been seen since 2014, reported Times of India.

The global oil market, which has been in a poor state since the outbreak of the COVID-19 pandemic, has spelt disaster especially for countries like India, which meets more than 80 percent of its requirements for crude oil and Liquefied natural gas (LNG) through imports.

India is the world's third largest oil consumer, after the United States (US) and China. Indian diesel and petrol prices, which are already battering domestic fuel consumers, are bound to rise further amid a jump in inflation sparked by the war.

According to a report by Bloomberg, a 10 percent rise in oil prices could add 0.4 percentage points to inflation in India.

A higher oil import bill may also widen the current account deficit.

The European oil market is also sure to take a hit because of its heavy dependence on Russian imports. Russia is the second-largest oil exporter in the world and meets 35 percent of Europe's oil requirements, as per reports by Times of India.

Impact on the Indian Rupee

The rising domestic inflation in India is also bound to destabilise the rupee further. The Indian rupee fell by around 1.5 percent to close at 75.65 compared to the US dollar as markets closed on Thursday amid Russia's invasion of Ukraine.

"Rupee became the worst performing currency among Asian currencies on back of month-end dollar demand from oil importers. Also, safe-haven dollar demand has surged after Russia attacks on Ukraine fueled sell-off in risk assets," Dilip Parmar, a research analyst in HDFC Securities, told PTI.

Apart from oil, domestic consumer products are also expected to see a jump in prices.

Krishnarao Buddha, senior category head of Parle Products, told PTI that fast-moving consumer goods (FMCG) like vegetable oil and RBD oil are likely to see a price hike.

According to data released by the Indian Ministry of Statistics and Programme Implementation, the inflation rate in the country shot up to 6.01 percent – a seven-month-high – in January this year.

Indian Markets Showing Signs of Revival

Despite falling for six consecutive days, India's key indices – S&P BSE Sensex and NSE Nifty 50 showed optimistic signs of recovery on Friday as markets opened.

At 9:19 am, the BSE Sensex rose by 1.9 percent or 1,026 points to reach 55,557. The Nifty 50 went up by 327 points – a 2 percent rise – to reach 16,575, IANS reported.

As the markets opened on Friday, the top five gainers among Nifty 50 stocks were Tata Motors, Indusind Bank, UPL, Tata Steel, and Adani Ports.

The top Sensex gainers were IndusInd Bank, Mahindra and Mahindra, Tata Steel, TCS, Bajaj Finserv, ICICI Bank and Wipro, as per reports by Financial Express.

Till Thursday, the Indian market was in a dismal situation as the Sensex crashed 2,702 points to close at 54,529, while Nifty ended at 16,247 – down by 815 points.

However, Indian stocks are still on thin ice, as are markets across the world. The reason for this is the absolute uncertainty regarding the direction that the Russia-Ukraine war may take in the coming days.

While rising oil prices are battering the global economy, inflation spurred by the invasion is also bound to make its dent – boiling down eventually as a severe burden on low-income households.

The Russian rouble has also taken a severe beating owing to rising tensions between Russia and Ukraine, falling to a record low of 89 compared to the US dollar as reports of explosions across Ukraine emerged, Financial Times reported.

(With inputs from IANS, Bloomberg, PTI, ToI and Financial Express.)