Impact of Russia-Ukraine conflict on oil pricesDate: 24 February 2022 Tags: Basics of Economics
The price of Brent crude has crossed the $96 mark after Russian President Vladimir Putin deployed troops to separatist areas of Donetsk and Luhansk in Ukraine.
Donetsk and Luhansk have been fighting a war since 2014. The announcement by Russia was on expected lines.
The west has accused Russia of blatant violation of international law. It says that Russia had a role to play in artificially raising crude oil prices and causing crash of share market.
The price rise
The spike has been caused due to fears of disruptions on supply side of crude oil caused due to Ukrainian invasion.
Invasion of Ukraine will not just cause supply disruptions globally, but also result in sanctions of Russia by US and Europe.
Russia is the world’s second largest crude oil producer. Prices have already risen since the fears of invasion started.
Since global economy is coming back to normal, demands have risen but supply is yet to recover.
Impact on Indian economy
Crude oil products have share of over 9 per cent in the WPI basket. Rise in prices would have inflationary effects. A 10% increase in price would raise the WPI by 0.9%.
Currently, 80% of our oil requirements are imported. It falls to about 25% in total imports of the country. The Current Account Deficit is expected to grow by $15 billion or 0.4 per cent of GDP.
The subsidy bill is likely to grow due to rise in prices of kerosene and LPG.
Impact on markets
Foreign investors have pulled out equities worth Rs 51,000 crore from Indian markets between January and February.
The Indian rupee has fallen by 1.4 per cent against the dollar. Markets are likely to stay volatile in near term due to continuing tensions.