Russia-Ukraine War Impact, Beyond Oil

Russia-Ukraine War Impact, Beyond Oil

The current Russian invasion of Ukraine — unlike previous wars in Iraq and Libya or sanctions against Iran — is having an impact not just on energy prices.The effects of shipping disruptions through the Black and Azov Seas, plus Russian banks being cut off from the international payments system, are extending even to the global agri-commodities markets.

How global commodity prices have moved?

• Russia’s war on Ukraine hasn’t stopped at driving up Brent crude to $110-15/barrel and international coal prices to unprecedented $440/tonne levels.
• The shutting down of ports in the Black Sea have also sent prices of wheat and corn.
• The Ukraine crisis has also led to prices of vegetable oils and oilseeds skyrocketing.

How it can benefit India?

• Skyrocketing global prices have made Indian wheat exports very competitive and India can partially fill the void left by Russia and Ukraine.
• High export demand for wheat could result in lower government procurement this time. A lot of wheat from western and central India may end up getting exported rather than in the Food Corporation of India’s godowns.
• The benefits of rising vegetable oils should flow to mustard growers in Rajasthan and UP, who are set to market their crops in international market.
• Brent at $110-115/barrel is also helping lift the prices of cotton (because of synthetic fibres becoming costlier) and agri-commodities that can be diverted for production of ethanol (sugar and corn) or bio-diesel (palm and soyabean oil).
• High prices (above MSP) can act as an inducement for farmers to expand acreages under cotton, soyabean, groundnut, sesamum and sunflower in the upcoming kharif planting season. That will serve the cause of crop diversification – especially weaning farmers away from paddy, if not sugarcane.

Challenges:

• The ongoing Black Sea tensions are impacting fertiliser prices. Out of the total import nearly a third came from Belarus and Russia. With supplies from there virtually choked, more quantities would have to be procured from other origins such as Canada, Jordan and Israel.
• International prices of other fertilisers (urea, di-ammonium phosphate and complexes) and their raw materials/intermediates (ammonia, phosphoric acid, sulphur and rock phosphate), too, have gone up.

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