The Impact Of The Ukraine-Russia Conflict On Oil Prices

Following Russian President Vladimir Putin’s invasion of Ukraine, Brent crude prices surpassed $96.7 per barrel, the most since September 2014. While the West has condemned it as a flagrant breach of international law, increasing global tensions and the danger of invasion in Ukraine have prompted oil prices to rise and world markets to tumble.

While oil prices had risen about 40% from December 1, 2021, when they were selling at $69.5, the BSE’s benchmark Sensex plummeted more than 1,250 points in initial trading hours on Tuesday, hitting a day’s low of 56,394. The rupee also dropped 33 paisas, or 0.44 percent, to 74.84 per dollar.

Why has crude risen in price?

Fears of supply-side interruptions have fueled the rise, as the possibility of a Russian invasion in Ukraine remains strong after Putin deploys soldiers to separatist territories Donetsk and Luhansk. A Russian invasion of Ukraine might impair global crude supply and result in US and European sanctions. Following disputes involving Russia, the world’s second-largest oil exporter, and Ukraine, oil prices have risen in recent months due to supply fears.

Concerns have also been raised about the growing demand-supply imbalance since the global economy opened up and normalized just after the Omicron wave passed.

Dated Brent, or the cost of physical North Sea crude oil cargoes due on specified dates, has already surpassed $100 per barrel. On February 16, the S&P Global Platts dated Brent benchmark achieved a high of $100.8 per barrel, the most since September 2014.

In response to increased crude prices, investor emotions have taken a hit recently. Between January and February, FDI’s turned net sellers, withdrawing a net of Rs 51,703 cr from Indian markets, causing equity markets to fall and become more volatile.

From $73.8 per barrel on January 12 to $74.84 on Tuesday, the rupee has lost nearly 1.4 percent against the dollar.

According to fund managers, markets are expected to remain turbulent in the short term due to geopolitical concerns.