The situation between Russia and Ukraine is highly volatile. Amidst the tensions, speculations regarding the next course of action by either country are sending the global markets in a frenzy. This conflict is causing ripples across economies around the world. Regardless of whether Russia invades Ukraine or not, some economic impacts have already started showing. Though there are news reports that Russia started to withdraw, tensions still continue.

In this article, we will review the global trade flows through the lens of the conflict and focus on how it can impact India.

Russia and its position in global trade

In terms of landmass, Russia is the largest country on Earth. It spans eleven time zones making it an important player in global trade. Russia depends a lot on exports to fuel its economy.

Exports In 2021, the top five exports by Russia were:
1. Crude Oil
2. Petroleum products
3. Natural Gas
4. Equipment and Machinery
5. Ferrous Metals

Also, the top 5 export partners were:
1. China
2. The Netherlands
3. Germany
4. Italy
5. The United States of America Imports

If we look at imports, then the top 5 imports by Russia were:
1. Equipment and Machinery
2. Medicines
3. Passenger Cars
4. Clothing
5. Ferrous Metals

Also, the top 5 import partners were:
1. China
2. Germany
3. The United States of America
4. Belarus
5. Italy

Russia plays a crucial role in global economics. It is one of the largest producers of natural gas, oil, nickel, palladium, copper, coal, potash, wheat, etc. Hence, any disruption in exports — either due to a government decision or sanctions imposed on it; can drive up commodity costs and put the global supply chain in disarray.
What should a global investor watch out for?
While any prediction or speculation is risky at this point, here are some factors that global investors can look out for to assess the economic impact of the evolving situation in Ukraine.

• Oil prices: Currently, the global crude oil prices are hovering near the $100 mark. Many analysts think that if oil prices touch $120 per barrel, then the inflationary surge seen around the world might last longer. This could have a direct impact on many businesses and their revenues.

• Auto Industry: Russia is one of the primary manufacturers and exporters of palladium. This is an essential element used in emission-reducing devices for vehicles. A disruption in exports could hit the global auto supply chain and result in soaring prices.

• Wheat prices: One of the most likely outcomes of an invasion is a marked increase in the global prices of wheat. Both Russia and Ukraine are major wheat-producing countries. Hence, even if global powers manage to keep the shipments moving, both these countries might not be able to produce the same quantities of wheat resulting in a shortage in supply and a subsequent increase in prices

• Aluminium: Russia is one of the top five producers of aluminium in the world. This metal finds applications in various industries. Hence, a disruption in supply can have a ripple effect on all such industries.

Potential impact on the Indian markets

One of the primary impacts expected by economic analysts is the potential increase in the price of crude oil if Russia invades Ukraine. This can impact industries in India like transportation, power, and almost all aspects of the economy.

It is important to note that while Russia was a major export partner of India, the volume of imports and exports has dropped drastically over the last two decades. While the government has been in talks to boost trade and investment relations with Russia, the direct impact of a conflict in Russia is expected to be minimal.

The increasing price of oil and commodities added to a war-like situation in Ukraine can potentially cause economic disruptions across the globe. Indian industries are likely to feel the heat of these disruptions too. While most economies have started their journey towards economic recovery after the pandemic, the Russia-Ukraine conflict can act as a dampener and result in global inflation.

Stock markets have been feeling the heat of the conflict too. On February 14, 2022, the US warned that Russia might invade Ukraine. This resulted in the global markets tumbling. Indian stocks dropped around three per cent too. During such events, investors become highly sensitive to even the smallest developments, and market volatility increases. Hence, investors must be mindful of such slumps before making investing decisions.

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