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Impact of Russia-Ukraine tensions on crude prices and India: ICICI Securities

Source : Times Now

Impact of Russia-Ukraine tensions on crude prices and India: ICICI Securities
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 ICICI Securities believes that oil prices are likely to remain elevated (well above US$90/bbl) for several months, once the US imposes additional sanctions on Russia (including its ability to export oil and gas) following a possible Russian invasion of Ukraine. Separately, the brokerage house reasons that sanctions on Russia would cripple the EU economy (causing an EU recession) for at least half a year given EU’s dependence on Russian exports and gas.

They reason that the impact on India will be two-fold. Firstly, higher crude oil prices will keep CPI inflation higher for longer which might lead RBI to raise rates more than the twice – unless the government sharply cuts excise duties on petrol and diesel to contain fuel inflation. Secondly, supply disruptions to the EU are also likely to generate greater demand for steel, engineering goods, etc given that the EU is the biggest market for India’s exports. This might augur well for India as an alternate supplier.

They expect India’s exports outperformance to continue in CY22, allowing exports to remain robust. India buys very little oil and gas from Russia, so the near-term disruptions to the Indian economy will be minimal (apart from the higher oil-import bill).

On crude, ICICI securities observe that Russia accounts for 11 percent of global crude exports, being the second-largest producer and exporter of crude oil. If sanctions take about 60 percent of this off global markets , world crude oil supply would decline by 3mmbd, and the Brent crude price would likely shoot above US$110/bbl. The possible revival of the Iran nuclear deal could restore about half of this supply, adding about 1.5mmbd of production and exports within a few months. However, even with the possible restoration of Iran as a major crude oil exporter, Brent would likely remain above US$100/bbl for much of 2022.

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