Russia's Ukraine blitz sends oil prices soaring, dampening hopes of post-Covid economic recovery

The jump in prices has been triggered by the possibility of significant disruption in the crude oil supply as some estimates show that Russia accounts for one in every 10 barrels of oil consumed globally, along with being the largest supplier of natural gas to Europe.

The disturbances in these markets are expected to send tremors across the global economy, impacting both industries and households, marring the pace of economic activities.

Global benchmark Brent crude rose $1.99, or 2%, to $101.07 a barrel around 0155 GMT on Friday. U.S. West Texas Intermediate (WTI) crude CLc1 climbed $1.89, or 2% to $94.70 a barrel.

The Economic Survey had projected growth for 2022-23 at 8-8.5 percent assuming crude oil prices to range between $70-75 per barrel.

A jump in crude prices will not only increase inflation but also pose risks on the fiscal front and the external sector.

According to analysis done by RBI, if oil prices increase by $10 raise, inflation could rise by 49 basis points (unless it is absorbed by the government).

Experts opine that the retail fuel prices in India, which are currently not in line with market prices, will be raised by oil marketing companies after the conclusion of the ongoing state elections.

This will increase the risks of retail inflation not moderating in line with the projections of the RBI, limiting the degrees of freedom before the monetary policy committee, unless these price hikes are offset by governments, at both the central and state level, by lowering their fuel taxes, according to an Indian Express report.

Taking this route will affect their revenues and will be particularly difficult for state governments who face uncertainty over their volume of revenues after the GST compensation cess ceases in its present form in the next financial year.

Skyrocketing oil prices will also put pressure on the current account deficit.

As per a report from Kotak Economic Research, for every $10/bbl increase in the average crude price, the current account deficit increases by roughly $17 billion or 0.5 percent of GDP, said the Indian Express report.

With this the Indian economy will also come under pressure.

The real estate developers have expressed concerns that the input costs of key raw materials are likely to skyrocket owing to rising geopolitical escalations between Russia and Ukraine, an Economic Times report said.

While the cement and steel prices have been rising over the past quarters but the cost-push the cost-push this time may need to be passed on to homebuyers.

Harshvardhan Patodia, president, the Confederation of Real Estate Developers' Associations of India (CREDAI) expects cement makers will inevitably have to pass on the burden of this cost-push as over 60 percent of their business is either directly or indirectly linked to crude prices, said the ET report.

Niranjan Hiranandani, National Vice Chairman, NAREDCO also pointed out the relation between the likely hike in property prices and the rise in costs of construction raw material, which is directly affected by the crude prices moving upwards.

“The growth pace of economic growth as well as consumer sentiment both get impacted by inflation caused by rising crude prices. Fuel price hikes impact supply chain and logistics cost of raw materials, leading to an escalation in cost of construction. This further adds woes for an already beleaguered Indian real estate, with impact on liquidity management in turn, impacting working capital for financing project development,” Hiranandani was quoted as saying by ET.