Russia-Ukraine Conflict: Impact of Crisis on Prices of Commodities

As the animosity between Russia and Ukraine grows to boil, the war has already begun to affect the Indian financial markets. On the back of the Ukraine crisis, the Sensex has lost 2,600 points and the Nifty has fallen below 16,400. Macroeconomic repercussions to geopolitical events are usually strong, causing a strong price drop in equity markets. Oil prices will climb as a result of the current Russia-Ukraine situation, as crude oil crosses the $100 barrier for the first time in seven years after Russian President Vladimir Putin ordered military action in Ukraine. The price of domestic natural gas, edible oil might climb as a result of the Russia-Ukraine war, according to analysts.

In light of market volatility and rising crude oil prices, Axis Securities' Chief Investment Officer, Naveen Kulkarni, told Economic Times (ET) that "Geopolitical events often come up with short-term reactions in the market as the dominant news flow leads to market volatility. The current Russia-Ukraine crisis would lead to a rise in oil prices, higher than the current levels. High crude prices could delay the cool-off in inflation, which was expected to go moderate by the second half of 2022. We believe the present macroeconomic developments are leading to volatility in all major asset classes, including equity and debt. The volatility is here to stay for some time before we conclude a market direction. Investors should focus on asset allocation and use this volatility to build long-term positions in quality large and mid-cap stocks as they become attractive after the recent correction and provide a good entry point."

Today the Indian rupee has ended at Rs. 75.65 against the US Dollar. Currency exchange rates vary based on a variety of circumstances, including rising Russia-Ukraine tensions, which caused the Indian Rupee to drop against the US dollar after Russian President Vladimir Putin declared a military strike in Ukraine. In the perspective of emerging market currencies Religare Broking's Vice President of Commodity and Currency Research, Sugandha Sachdeva, told ET that "The Indian rupee has rolled on the steep downhill path and reeling under pressure in tandem with other emerging market currencies amid the crisis unfolding in Ukraine. Risk sentiments have soured as a comprehensive military assault by Russia is underway in Ukraine. This has led to steep gains in the safe-haven greenback and crude oil prices owing to supply worries while dragging down the domestic equities. Looking ahead, the Indian rupee is likely to trade with a depreciation bias as geo-political tensions aggravate, where it can test levels of close to the 76.10 mark."

Regarding the impact on regional commodity supplies, both gold and silver are trading on the heavier end of the Multi Commodity Exchange (MCX) on Thursday, February 24, 2022, and have hit their highest level in more than a year. As tensions between Russia and Ukraine worsened, precious metals may continue to shine in subsequent sessions and stay volatile in the short term. In the metals sector, Russia is the world's leading producer of aluminium and a global supply leader, and the crisis might cause a supply crunch in the aluminium sector. According to the US Geological Survey, Russia produced 920,000 tonnes of refined copper last year, accounting for approximately 3.5 percent of global output, and the ongoing conflict between Russia and Ukraine might stymie supplies. The crisis has heightened global market tensions, as concerns about supply disruptions grow if the confrontation between Russia and Ukraine worsens.