Economic impact of the Russia-Ukraine crisis for Investors

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. In India, the Russia-Ukraine conflict has moved the aluminium stocks such as NALCO Vedanta and HINDALCO. This is because, according to many market experts, if there is a supply deficit, India could benefit. That is, it could become a major exporter of aluminium and could have an advantage over pricing. 

Potential impact on India

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.

• Sanctions on payments: With multiple economic and banking sanctions imposed on Russia by the US and EU, the exports to Russia (from India) has come under pressure. Most Russian banks have been blocked from SWIFT payment system. SWIFT is a payment network which ensures quick cross-border payments globally. With the blocking of the Russian from the payments network, it will be difficult for Indian traders to make/receive payments from Russian counterparts. According to many media reports, making payments in Ruble (Russian currency) could be difficult considering its decline in recent weeks. Also, Ruble is not freely convertible.

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 market

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.