HOOGHLY MOHSIN COLLEGE

Name – Subhrangshu Mallick

B.Com (Hons.), Semester VI
University Roll no. - 190240500031
Registration No. – 201901042004
Academic Year – 2021-2022
Topic – Impact of Russia-Ukraine war on price
of petroleum products in India: A Study
Supervisor – Prof. Debabrata Lahiri

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 Contents:-
1 Acknowledgement 3
2 Introduction 4-5
3 Literature Review 6-8
4 Objective of the study 9
5 Research methodology and data 10
source
6 Findings of the study 11-18
7 Conclusion 19
8 Limitations and scope for further 20
study
9 References 21

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Acknowledgement:-
The preparation of the project on the topic „Impact of Russia-Ukraine war on price of petroleum
products in India: A Study‟, was very much exciting and challenging as well. I have made my
sincere efforts in gathering the materials from various sources like newspapers, magazines, and
internet for completing this project.

I do express my sincere gratitude to my supervisor Prof. Debabrata Lahiri, who has been helping
and guiding me throughout to complete this project by giving valuable suggestions.

I would also like to give a special thanks to our HoD Dr. Sajal Kumar Maiti who gave me this
project topic which has helped me to do a lot of research on this topic and gain a lot of
knowledge on the impact of Russia Ukraine war on Indian economy.

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Introduction:-

After two long years of reeling under the impact of the COVID-19 pandemic, the global

economy was finally on the road to recovery.

Then Russia decided to invade Ukraine, which resulted in the deaths of civilians and soldiers,

people fleeing to neighboring countries and becoming war refugees.

Since February, more and more countries have cut diplomatic and business ties with Russia.

Russia faced a huge economic sanction.

Even though India has maintained a delicate diplomatic balance between Russia and the West, it

cannot avoid the economic fallout.

Russia is the one of the largest crude oil producers in the world & due to the sanctions imposed

by the US and other European countries on Russia, crude oil prices rose further due to the

ongoing tensions. The sanctions also lead to an increase in the crude oil prices, and it has already

crossed the $100 per barrel mark ($108 as on 5th May, 2022), which is highest since 14 years &

its price was already up by 45% in the first 6 months of 2021(was rallying to $80 per barrel). But

there shall be a negligible impact on India as of now as India imports most of it‟s oil needs, but

majority of it comes from Middle East as logistics & transportation is cheaper due to the

geographical positions of countries. Russia has a large area covered where it can supply oil

through pipeline to the Europe & neighboring countries, through road to the countries residing in

the south of Russia & via sea route to the western countries through Alaska.

Russia's attack on Ukraine has invited reactions from leaders of various countries across the

world as it has started showing its impact on different economies of the world. Amid Russia-

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Ukraine war and the worsening crisis, a question was rife - What would be the impact of Russia-

Ukraine war on India. The question was quite pertinent as India is one of the fastest growing

economies in the world.

The economic crisis between Russia and Ukraine had impacts on different sectors in India

including petroleum, edible oil, pharmaceuticals, agricultural products etc.

In this project we shall discuss about what direct and indirect impacts India have faced regarding

petroleum products.

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Literature Review:-
Global oil prices are of profound importance for both policy makers and researchers since oil is
indispensable for the world economy. Oil price is one of the most volatile commodity prices and
oil price volatility affects global economic performance. Similarly, Alekhina and Yoshino
argued that changes in oil prices not only contribute to macroeconomic fluctuations but also
affect monetary and fiscal policies of countries around the world.

A report published by The Oxford Institute for Energy Studies said that “Fears over energy
sanctions and the ambiguity over the banking sanctions have already seen companies avoid
purchasing Russian barrels, pushing prices to new multiyear highs and shaving-off shock
mitigation policies such as the SPR releases. Also, it has become clear that traders holding
Russian crude on their books are struggling to clear cargoes and this has been reflected in
widening differentials and rising shipping and insurance costs”.

According to The Hindu The Russia-Ukraine conflict has begun to have a major impact on the
world energy markets. Ever since the conflict started, and especially after the announcement of
economic sanctions on Russia, crude prices have been steadily climbing. They have risen most
sharply in Europe, which is heavily dependent on Russian natural gas.

According to Business Standards The global oil market has been pitched into turmoil by Russia‟s
invasion of Ukraine, with the US and Europe imposing penalties on Moscow and crude buyers
shunning the country‟s cargoes. Brent neared $140 a barrel earlier this month to hit the highest
since 2008, before easing. Prices have seen unprecedented volatility, with frequent intraday
swings of about $10 and broader commodity markets seizing up amid a widespread liquidity
crunch.

A study by Meihong Sun, Huasheng Song, Chao Zhang shows that the stock market reactions to
the Russian invasion on Feb. 24 in 2022. Using an event study methodology, they document that
the war has a different impact on stock markets across countries and sectors, depending on how
deeply the countries or industries are involved in the war. Country-level analysis confirms that
firms in EU countries have experienced a huge decline in cumulative abnormal returns while
firms in other countries away from the battlefield seem not to be significantly affected. Sector-
level analysis shows that the manufacturing sector in EU countries is heavily affected by the war
and finance and services sectors show a negative effect to a larger extent than manufacturing. In
addition, Russian oil and gas firms are negatively affected by the war. Their findings suggest
economic consideration is likely to be the compelling factor for Russian governments to halt its
war in Ukraine.

The analysis of Russian energy policies after the political crisis in and around Ukraine offers
important insights with respect to the economic and geopolitical repercussions. The structural
changes made in the Russian energy sector have been significant and include both internal and

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external dimensions. The Russian energy sector is under stress and has to adapt to low oil and
gas prices, economic sanctions and increasing competition on international energy markets.
Against the background of this turbulence on the energy markets, Russian energy companies are
pursuing various strategies: a shift to Asia and asset swaps with Chinese and Indian companies,
stronger integration within the Eurasian Union and changing strategies on the European energy
markets. The structural changes have been reinforced by recent geopolitical developments,
which have led to the deterioration of EU-Russia energy relations and the securitisation of
energy questions. However, despite immediate intentions to diversify away from one another, the
EU and Russia will remain dependent on each other in the gas and oil sectors at least for the next
10 years.

Putin‟s war against Ukraine is a human tragedy that will result in fracturing the relationship
between Russian, its European neighbors, some emerging countries, and it represents a challenge
to the advancement in global economic linkages we have seen during the last 50 years. The
human tragedy has resulted in displacement of people and has created a refugee crisis for
approximately four to seven million individuals, mostly women and children. The World Bank
has referred to this as an economic catastrophe for the global economy. In addition to the human
tragedies and displacement of people, economic challenges, in terms of access to energy and
petroleum products have resulted in an increase in the price of oil to exceed $130 USD. It also
disrupted existing global supply arrangements in petroleum products that are impacting the
European countries and other consumers in emerging countries. The US‟reliance on Russian oil
is quite minimal, while the reliance of the European countries is significant. The US has called
for curtailment of petroleum products from Russia though we import much fewer petroleum
products from Russia than Europe. Moreover, the US government has called on US oil
companies to drill for more oil.

India is a major importer of goods, including oil, from Russia and is likely to suffer. Its
economic growth is likely to be not as robust as it was forecast to be prior to this war. Other
developing countries, reliant on exports from Ukraine and Russia, will have severe economic
difficulties. In its fourth week, we have not seen any clear indication of when this war will end.
Severe economic sanctions have been placed on Russian consumers and other supporters of
Putin. As one of the three largest oil-producing countries, Russia will have fewer financial
resources, and it is currently forbidden to use the SWIFT international payment system. This will
call into question existing payments for goods that are in transit and will further cloud the ability
of Russia to improve its economic links with many emerging countries. The value of the ruble
has declined significantly and is likely to weaken further. This short-term decline in the ruble
will also have an impact on Russian consumers, not only in the short term, but also in the long
term. The existing oil and natural gas supply agreements between Russia and its European
neighbors will suffer beyond the short term. Overall, a global economy will demand an estimated
100 million of barrels of oil daily, and Russia produces and supplies an estimated 8 million

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barrels daily. This will not be easy to replace even if Venezuela is allowed to produce and sell
more.

All India Petroleum Dealers Association President Ajay Bansal told India in an interview that,
"Consumers should be mentally prepared to pay more. Expect prices to rise for the next 15 days"
during the time of war.

Highlighting the reasons behind the hike in prices, he said, "The price rise is due to the Russia-
Ukraine war and the sanctions on Russia. India is dependent on international crude supply and
international prices impact Indian consumers. India ships about 90 per cent of its oil needs from
overseas markets."

According to petrol pump dealers, the common man can get some respite from rising fuel costs if
tax is cut by the centres and states.

Dealers said, "Our margins have not increased since 2017, though our costs have gone up. We
will need an increase soon, so if the government can undertake an excise duty cut, it will cushion
the price increase for consumers. "

Dealers expect prices to increase between 80-90paise/litre every day for the next 15 days

Indian economy had just started to recover from the COVID-19 shocks but then the Russia-
Ukraine war pushed the economy back. A country like India which is deficient in oil and natural
gas finds it increasingly difficult to cope up with the rising price.
India must strive to improve its energy security situation with a combination of. of calibrated
global energy diplomacy, improving domestic production, and widene.

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Objectives of the study:-
India imports about 3 million barrels of crude oil per day. This is a huge quantity of crude oil
import. So a rise in crude oil price due to Russia-Ukraine war definitely affected the domestic
economy. The objective of the study is to see how Indian economy gets affected by this war on
petroleum products.

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Research methodology and data source:-
This article is completed through a study methodology which is largely relied on secondary sources,
especially from the daily news papers and from other various web sources. All the collected and collated
information and data are presented systematically thereby meaningful inferences would be drawn.
Further, the article relates to the present situation.

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Findings of the study:-
Global impact –
As Russia invaded Ukraine, some European countries backed by USA imposed heavy economic
sanctions on Russia. And due to that the supply chain had been heavily disturbed. Thus sharply
rising price of commodities due to less supply had been the most immediate economic impact
faced by the countries which includes food, crude oil, fertilizers etc. Russia is the world‟s second
largest oil producer, which mainly sells crude oil to European refineries and is the largest
supplier of natural gas to Europe providing about 35% of total supply.

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The following four graphs shows the rise in price of crude oil (fig. 1), natural gas (fig. 2), corn &
wheat (fig. 3), metals index (fig. 4).

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Impact on Indian economy –

As soon as the war started, India‟s stock market saw a fall in points which is also worst after 23 rd
March 2020 when the govt. of India imposed lockdown due to covid 19. The market crashed for
2702.15 points on 24th February. This stock market crash directly affected the Indian economy.
More than 13 lakh crore rupees were washed out of the market.

Russia is India‟s 25th largest trading partner with exports of $2.5 billion and imports of $6.9
billion in the first nine months of the F.Y. 2021-22.

India‟s key exports to Russia include mobile phone and pharmaceuticals while India‟s key
imports from Russia include crude oil, coal, diamonds etc.

Crude oil and coal are those items on which Indian economy depends a lot. Due to the war, the
supply was disrupted as a result the import bill increased. Though the crude oil import from
Russia by India is very less compared to crude oil import from other countries like middle east
and the US. But still due to global price rise in petroleum it affected a lot

The long-running conflict in Ukraine is expected to raise import costs for Ukraine by more
than USD $ 600 billion this financial year. Inflation, growing account deficits, and rupee
depletion will be the main consequences. More than 80% of India's crude oil demand is
met by imports. According to economists and experts, a 10% increase in crude oil prices will

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increase India's account deficit by $15 billion, or 0.4%of GDP, causing a slowdown in
inflation. Last year, trade between India and Ukraine was estimated at $500 million.
Brent crude exceeded $108per barrel on March 14, 2022. With the decline in the value
of the Indian rupee, India will have to pay more. Businesses will face additional pressure due
to the current climate of inflation. It remains to be seen if they will choose to send this
information to the customer.According to information from the US Energy Information
Administration (EIA), Russia produces 12.5 to 13% of the world's crude oil, more than half
of the crude oil produced by the Organization of Petroleum Exporting Countries (OPEC) in the
eastern region of Central Asia. Many budget figures may not work if green costs
continue at current levels, or worse, rise further, as the government will face fewer
economic problems (it will have to reduce taxes) and current challenges. Oil prices may rise
from their current level of $108 to $120 to $140 per barrel, a significant increase in the near
future. Costs of natural gas are also likely to climb. Europe is a slave to Russian gas, and
Russia‟s ban from the SWIFT international financial system, disrupting payments for its
valuable energy and agricultural exports.

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Crude oil related products have a direct share of over 9% in the wholesale price index (WPI)
basket. WPI is a measure which tells that what would be the impact on the price of products
before the product reaches the consumer. So a rise in crude oil basket increased the budget for
Indian households.

WPI comprises of three components – Manufacturing goods, fuel & power and primary articles
with a share of 65, 15 and 20 percent approx respectively.

Our main concern is on fuel & power which consists of petrol, diesel, LPG etc. that is crude oil.
Due to war the supply of crude oil gets disrupted, the global oil price increased which directly
led to the rise of petrol, diesel, LPG. And every household in India have to bear it.

Brent crude oil prices hit $100 per barrel mark for the first time since 2008.

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Following the rise in crude oil price the cost of aviation turbine fuel (ATF) used in aeroplane, has
advanced 19%. This has led to the rise of airfare.

Fuel prices are determined by state-owned Oil Marketing Companies, such as Bharat
Petroleum, Indian Oil and Hindustan Petroleum. There are four contributing factors to the
price of petrol and diesel in the country. India imports Brent crude oil from the Organisation
of the Petroleum Exporting Countries (OPEC) countries. The crude oil is processed by
boiling and then distilling to separate various fuels and gases. The base price for these fuels,
such as petrol and diesel is set by the central government. The base price for crude oil, for
example, on November 4 was Rupees 39.4 per litre, and the price of petrol after adding
processing and freight charges was at Rupees 48.28 per litre. Then commission for the dealer
at the petrol pump, central government's excise duty, and the state government's value-added
taxes are added to that amount to determine the final price of the fuel in the respective state.

Petrol and diesel prices in India remained stagnant since November 4, 2021. To bring some
relief to Indian middle class, the central govt. cut down the excise duty on petrol and diesel
by Rs. 5 and Rs. 10 respectively in November last year. Several state govt. also reduced the
VAT imposed on fuel price.

But after this war the fuel price again started to rise.

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Paint companies use crude oil derivatives such as monomers and titanium dioxide as raw
materials, which account for more than 50 percent of a company‟s total expense. So, rise in
crude oil price also resulted in rise in price of paints directly.

Tyre manufacturing companies also need crude oil derivatives which constitutes about 30%
of their material cost. So tyre price also increased.

Higher oil price put pressure on currency. The rupee devalued because of the rise in import
bill.

Higher oil prices led to direct impact on transportation. Rise in cost of transportation affected
the price of commodities. As a result of which cost push inflation could be seen. As a whole,
ultimately the end user that is the consumers are affected. Cost of living increases.

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To counter the inflation the RBI was forced to withdraw from the accommodative monetary
policy that they have been following since the outbreak of the pandemic. Accommodative
monetary policy is a strategy used by central banks that is aimed at keeping interest rates low
in order to infuse more cash into the economy to boost the growth or reduce unemployment.
This was done to boost the economy as it had become stagnant due to lockdown. Govt.
wanted to increase demand of consumers by giving them loan at lower interests. But now due
to cost push inflation price of commodities were increasing and if due to accommodative
monetary policy people continue to purchase more goods, simultaneous demand pull
inflation can also be noticed.

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Conclusion:-
There is a spectrum of views on inflation and the economy„s ability to tolerate it. There is a
multitude of ways that economists and other analysts slice and dice it: food versus non-food,
core versus consumer, cost-push versus demand pull and so on. Inflation is also intensely
political. Energy prices will go up sharply as crude oil and coal prices spiked as a result of the
current crisis involving Ukraine and Russia.

The problem is, inflation may have been suppressed for a while recently. Elections in Uttar
Pradesh, Punjab, Goa, Manipur and Uttarakhand necessitated keeping fuel prices untouched even
as global crude prices were rising even before the Ukraine crisis; many are also expecting a hike
in minimum support prices (MSP) for farmers. Both these are expected to go up. Look out for
second order effects as transport prices and freight rates also go up.

Household Inflation Expectations Survey expected inflation to be higher at 9.7 per cent a month
ahead, and at 10.6per cent in the coming three months, and 10.7 per cent for the coming year.
Compare that to the RBI„s target of 4.5 per cent for the year.

The crude oil import, which stands at 20% of India‟s total import bill need to be dropped to a
certain percentage and substitutes to crude oil like ethanol and more and more of renewable
sources of energy need to be introduced as early as possible to free the country from the clutches
of inflation.

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Limitations and scope for further study:-
Even if the project is completed successfully but there some limitations which cannot be written
off. Following are some limitations –

1. The project work is totally based on secondary data so there remains a doubt on data
reliability.
2. Most of the data which is given in the project is nearly upto two to three months data
since the Russian invasion on Ukraine which might change at the time of submission of
the project.
3. The Russia Ukraine war caused a global economic crisis which affected the whole world.
It takes a longer time to properly understand the economic impacts but this project has
been prepared in a very short period of time taking some future assumption of impacts
which actually may not happen in a short period of time.
4. India is a huge country and there are hundreds of sectors which uses petroleum products
as raw material. It is not possible to highlight the impacts on every sector due to price rise
in petroleum products.

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References:-
1. Journal Of Asia-Pacific business, 1.3.22 – papers.ssrn.com
2. Impact of Russia-Ukraine conflict on Indian Economy, Immediate adversities(1.a) Crude
oil & Gold Prices(2.a) – www.taxguru.in
3. Verma M. (2022) „How will the Russia-Ukraine war impact the Indian economy‟ –
www.qz.com
4. Srinivas S. (2022) „Russia-Ukraine war : what impact can it have on Indian economy‟ –
www.businesstoday.in
5. Singh D. (2022) „Russia-Ukraine war : „How rising oil prices impact us in ways we don‟t
quite notice‟ – www.indiatoday.in
6. Kaleczkowski M. (2022) „How does the war in Ukraine affect oil price?‟ –
www.weforum.org
7. „Russia Ukraine crisis : Implications of global oil markets‟ – www.oxfordenergy.org
8. Sampath G. (2022) „How will the Ukraine-Russia conflict affect crude oil price?‟ –
www.thehindu.com
9. Gross S. and Dollar D. (2022) „How the Ukraine war is affecting oil and gas markets‟ –
www.brookings.edu
10. PTI, New Delhi, „Aviation turbine fuel price rises marginally, rates at record high, -
www.business-standard.com
11. Sen Gupta N. (2022) „ Tyre makers announce price hike of 2% -8% -
https://timesofindia.indiatimes.com
12. Mohammad N. (2022), „The Russia-Ukraine war crisis : Its impact on India‟s Economy‟
13. https://youtu.be/BuJW8nrRly4
14. https://youtu.be/qgQgAjNhaUQ
15. www.macrotrends.net
16. www.tradingeconomics.com

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