The Russia-Ukraine conflict has triggered a worrying surge in the prices of oil, wheat, and corn, particularly since the two countries involved are key global suppliers of these and several other agricultural products, with regions in Asia and the Middle East among their major buyers.
The shock of Russia’s invasion of Ukraine lifted crude oil prices to over $100 per barrel, for example. Prices breached the $105 per barrel mark – a jump of almost nine per cent from the earlier mark – for the first time since 2014 – and that too was when the two were caught in a military conflict.
Wheat prices have jumped to their highest level in over 13 years and Russia’s attacks have raised fears of shortages of the vital crop. The knock-on effect of this will mean overall food prices could go spiralling out of control – not what the world needs when it is combating Covid and poverty.
Combined, Russia and Ukraine produce almost 25% of the world’s wheat.
Ukraine – referred to as the ‘breadbasket of Europe’ – is also a major producer of corn, with its supplies going to many European Union nations as well as those in Africa and the Middle East.
China is also a big consumer of corn from the region, and Russia and Ukraine together produce about a fifth of the world’s supply of this grain.
Restrictions on the supply of oil are also a major concern, with both countries among the world’s largest producers of the commodity. Russia’s invasion caused petrol and fuel prices to jump in many countries, including developed nations like the United Kingdom and the United States.
How does all this affect India?
Like other countries around the world, the Indian economy has already taken a battering from the coronavirus pandemic and rising oil prices, as one example, will not be welcomed by, particularly after fierce political protests over the increase in petrol and diesel prices last year.
India is the world’s third-largest oil consumer and depends on imports to meet 85% of its needs. The imported oil is converted into products like petrol, diesel, and LPG.
Changes in petrol and diesel rates in India are directly influenced by the price of crude oil in the international market. The current high global prices will percolate through the economy and hurt consumers, while also widening the country’s current account deficit.
The impact of potential corn and wheat shortfall on India’s economy and prices will perhaps be less severe, given it is a major producer of both. Certainly, however, disruptions in the latter two commodity’s supply chains could become a major problem for many countries.
Wheat, oil, and corn are just three examples of how prices of essential commodities could increase around the world as a result of Russia’s attack on Ukraine.
Coal supply could be also be hit. The Indian Captive Power Producers Association was reported by PTI as saying the conflict could reduce imports and lead to supplies to power plants being affected.
The global community has slapped multiple sanctions against Russia and the Russian economy, targeting financial institutions (to disrupt its ability to do business in dollars, pounds, and other major currencies) as well as specific sectors, such as the electronic chip industry.