Challenge for India:
- The Big One which hurts the world: Russia is the second-largest oil exporter after Saudi Arabia and the world’s top producer of natural gas. It had an annual average of 10.5 million barrels per day (b/d) in total liquid fuels production.
- Oil price shot up over 7%, today and crossed the US$103 per barrel mark – the highest since August 2014. India is a net importer, importing 85% of its need. Now with analyst expecting Oil to hit $125 a barrel if the war continues, We have a reason to worry. Inflation will go up, our balance sheet will be under strain, pressing RBI to act and further increase interest rates. However, as situation deescalates Oil prices will soften.
- This crisis has brought China-Russia more closer, as China came out in open support of its old ally, Russia. Not great for India.
- India was quiet during Crimea Annexation by Russia in 2014, so will it be now. Russia is our old and dependable partner who helped us during several crisis. Can’t afford to go against it.
WAR & MARKETS:
Putin is going to drive the World markets for next few days. How deep will this conflict go, needs to be seen.
From a Historical perspective, armed conflicts have resulted in sudden fear and panic making markets bleed, but in Short while, markets have bounced back Strongly to higher levels. Though every conflict and it’s impact will differ.
- WWII (World War II) in 1939 until it ended in late 1945, the Dow (US) was up a total of 50%, more than 7% per year. Nazi (Germany’s) entry into what was then the Czechoslovakian nation in 1939, and the attack on France in 1940. The S&P 500 fell by 20.5% and 25.8% respectively during the following 22 trading days. One year after these instances, the market was up almost 19% and 9.2% respectively, eliminating much of the drop
- During Pearl Harbour, S&P 500 dropped around 11% in a single day after the attack. Despite all this turmoil, S&P was up 3% higher one year later.
- During 9/11 terrorist attacks, which shook US and took over 3000 American lives: S&P 500 dropped around 12% in 11 days and recovered back in 31 days.
- Iraq Invasion of Kuwait: Markets tanked 16.9% in 71 days and recovered back in 189 days.
- Interestingly during Kargil war: Indian share markets were up by over 30%.
Why are they at Conflict?
- Russia feels threatened by the growing US dominance through its NATO alliance and has sought assurance from Ukraine that it will not join NATO, this demand was not accepted.
- With Ukraine planning to Join NATO, Russia will have enemy right at its door step, which a strong man like Putin will not like.
- NATO?: North Atlantic Treaty Organisation and was established in the aftermath of World War II. Was originally formed by 12 Members in 1949 and currently there are 30 members. This rapid expansion of NATO countries has irked Putin, who also claims that US broke a 1990 Guarantee, that NATO will not expand towards further East (towards Russia), claiming the US has deceived Russia.
Long & Short: High crude oil, commodity prices (Russia is a treasure of commodities) and blood shed will continue to trouble Ukraine and the world for some time, but as history shows what goes down, bounces back as well. Wars don’t start with End time tag, but just can’t be perpetual. Prayers for those who are on the line of Fire.