Oil prices have been rising for the past two months due to tensions between Russia and Ukraine. The price of Brent crude oil today crossed $ 100 a barrel as Russian President Putin authorizes war in Ukraine. How will this affect the Indian economy?
Sandeep Singh , Karanjit Singh
Ukraine invasion: How jump in crude prices will impact Indian economy: Brent crude oil price crossed $ 100 per barrel on Thursday for the first time since September 2014, following Russian President Vladimir Putin’s recognition of military action in the Donbass region. The bomber struck shortly after noon in Kiev, the capital of Ukraine, shortly after military action was announced on Thursday.
Although Western nations have called the move an “unprovoked” and “unjustified” attack, crude oil prices have risen and stock markets have plummeted worldwide. The crude oil price has been trading at $ 70.4 since December 1, 2021 and is currently up 40 per cent at $ 101.2 (10.10 am IST), while the BSE benchmark Sensex fell over 1,750 points to 55,504 (10.10 am IST) and ended the day. 55,148. The Indian rupee depreciated by 40 paise, or 0.5 per cent, to 75.1 against the US dollar.
During the January-February period, FPIs pumped out Rs 51,703 crore from Indian stocks.
Why are crude oil prices so high?
The increase was primarily due to fears that Russia’s invasion of Ukraine and the sending of Putin’s troops to the separatist areas of Donetsk and Luhansk in Ukraine could disrupt crude oil supplies.
The Russian invasion of Ukraine will not only disrupt global crude supplies, but also lead to sanctions by the United States and Europe. Oil prices have been rising for the past two months due to concerns over supplies, following tensions between Russia and Ukraine, the world’s second-largest oil producer.
Concerns have also been raised about the growing imbalance between supply and demand following the opening up of the world economy after the Omigron wave subsided.
The price of dated Brent crude oil or North Sea crude oil supplies delivered on specific dates has already exceeded $ 100 per barrel. The Brent benchmark, dated by S&P Global Platts, reached $ 100.8 a barrel on February 16, its highest level since September 2014.
How will this price hike affect the Indian economy?
There will be an impact of inflation. India imports more than 80% of its oil demand, but India’s share of total imports is about 25% of usable oil imports. Rising oil prices will affect the current account deficit. Current account deficit is the difference between the value of goods and services imported and exported.
Also read: Russian invasion; Ukraine closed the airspace; What is the status of the flight plan to rescue Indians?
The rise in crude oil prices is expected to increase subsidies on LPG and kerosene and raise subsidies.
How does the rise in crude oil prices affect consumers?
The rise in petrol and diesel prices across the country in 2021 is due to higher crude oil prices. Petrol and diesel prices fell in November as the central government reduced excise duty on petrol and diesel by Rs 5 and Rs 10 per liter. And most states have cut their value-added tax and cut petrol and diesel prices even further.
Petrol and diesel are currently sold at Rs 95.3 and Rs 86.7 per liter in the national capital. After tax cuts in November, oil marketing companies did not revise prices, with Brent crude falling from about $ 84.7 a barrel in early November to below $ 70 in early December. Although consumers did not reap the full benefits of the fall in crude oil prices in November and December, fuel prices are likely to rise if crude oil prices rise now.
What impact can it have on investor sentiment and markets?
The mood of investors has been affected by the rise in crude oil prices over the past few days. Foreign portfolio investors turned into net sellers and pumped out Rs 51,703 crore from Indian stocks between January and February, leading to a slump and volatility in the stock market.
The rupee fell 1.7% to $ 75.09 against the dollar from $ 73.8 a barrel on January 12.
Financial managers say markets have been volatile in recent times due to geopolitical concerns.
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