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Current Affairs

Impact of Russia-Ukraine conflict on oil prices

Date: 24 February 2022 Tags: Basics of Economics

Issue

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.

 

Background

Donetsk and Luhansk have been fighting a war since 2014. The announcement by Russia was on expected lines.

 

Details

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.