The Russian invasion of Ukraine has had a negative impact on equity markets while leading to a surge in crude oil, base metal, and agricultural commodities. With an escalating invasion by Russia in Ukrainian territories, sanctions that were imposed by the West on Russia, have disrupted global supply chains.
Amid the ongoing tension, the Black Sea port region—which is an arterial supply route for trade from erstwhile soviet states to Europe and Asia—has also witnessed a halting of operations. Meanwhile, major shipping company Maersk has also halted operations in Russia.
The conflict has also impacted companies in India. Here are the sectors which are impacted due to the ongoing conflict between Russia and Ukraine:
Russia is the third-largest exporter of crude oil globally. With the Russian invasion of Ukraine, the crude oil prices soared to a seven-year high of $110 per barrel. On Wednesday, the Brent crude oil benchmark was trading at $110.23 per barrel. Several sectors are crude-oil dependent. These include paint makers, oil makers, and fertilizer companies. India imports 85 per cent of its oil requirements. The Economic Survey 2022 estimated India’s Gross Domestic Product (GDP) growth rate at 8.0 to 8.5 per cent in 2022-23, which hinges on crude oil prices being in the range of $70-$75 a barrel. With crude oil crossing $100 per mark, it will have a negative impact on these sectors. It is also bad for the overall economy as it will increase the government’s import bills. Moreover, with higher crude oil prices in the international market, the fuel prices will also witness a surge, thus giving a push to inflation further.
Ukraine and Russia are the major suppliers of sunflower oil. Between November 2020 and October 2021, India imported a total of 18.93 lakh tonnes of crude sunflower oil, of this Ukraine exported 13.97 lakh tonnes and Russia exported 2.22 lakh tonnes of sunflower oil to India. With the ongoing Russia-Ukraine crisis, the demand and supply chain of sunflower oil has been impacted. As a result, edible oil companies are now looking at options to import edible oil from other countries. They are also proposing the usage of other cooking oils such as palm oil and groundnut oil so that the retail prices do not increase.
The Russia-Ukraine region is one of the major exporters for some of the key agricultural products globally. The region makes up more than 30 per cent of global trade in wheat, 32 per cent for barley, 17 per cent for corn, and more than 50 per cent for sunflower oils, seeds, and meals, according to Reuters. As the tension between Russia and Ukraine escalates, it has impacted the supply chain of these products. The European Union has already warned that the impact of the Russia-Ukraine war will be painful for the agri-food sector. The pantry staple products such as pasta, flour, and bread are likely to become more expensive in India.
Ukraine and Russia are amongst the major chip exporters globally. According to a report by Moody Analytics, while Russia supplies the semiconductor industry with important metals such as palladium, Ukraine supplies special gases such as Neon and Helium which are required for chip making. As the ongoing war between Russia-Ukraine escalates, the semiconductor industry is going to bear a massive brunt, with chip-dependent sectors such as the automobile and the IT sectors getting hit badly. Even before the crisis, the world was facing a semiconductor shortage. According to the report, amid the ongoing Russian-Ukraine crisis, the prices for neon gas have surged 10 times, which will potentially impact the manufacturing of automobiles in the Asia-Pacific region.
The prices of base metals are likely to move higher amid the ongoing Russia-Ukraine crisis. “The latest triggers come from Ukraine – Russian geopolitical tensions which have led to sharp volatility in most asset classes. Before this Russia-Ukraine crisis escalated, select metals were already seeing very strong fundamentals and there are possibilities of the United States and its European allies to announce fresh sanctions against Russia. Aluminum has added over 40 per cent gains in 2021 and added 20 per cent gains in 2022,” Navneet Damani, senior vice president - commodity & currency research at Motilal Oswal Financial Services said.
“Russia produces around 6 per cent of the world's aluminium and 7 per cent of mined nickel. Sanctions on aluminium maker Rusal in 2018 drove the metal's price up 35 per cent in days. Used in stainless steel and batteries for electric vehicles, nickel, is up around 20 per cent this year having risen 25 per cent in 2021. Lower inventories in metals along with strong consistent demand has been already supporting the backdrop, and with the latest trigger, it looks like the metal has got some more feet to rally," he added.
The ongoing Russia-Ukraine crisis will impact the core sectors of the Indian economy. As the Indian Rupee also witness depreciation against US Dollars, India is likely to witness a surge in prices of products in the coming days.