The ugly conflict between Russia and Ukraine is no secret anymore. Both countries have openly announced their dispute while raising the risk beyond calculation. This conflict is not just affecting these two countries but leaving a negative impression on the world by seriously impacting the stock market.
Global markets are losing all their hopes with the soaring fight between these two countries. This escalated dispute is affecting the value of mutual funds as well as exchange-traded funds in millions of accounts.
Wondering how the Russia-Ukraine dispute is impacting the stock market badly? Continue scrolling the page to dig more.
What is the stock market condition during the Russia-Ukraine Cold War?
The overall stock market is affected by multiple troubles, including inflation, rising interest rates, and supply-chain bottlenecks. This dispute will definitely bring more disaster to the market in the future.
Russian aggression in Ukraine might signal the beginning of something far massive: a global change that ushers the globe into a 21st-century Cold War. Even if this is true, the empirical facts imply that the economic consequences for wise, balanced individuals who live far away from immediate dangerous areas may not be as harsh.
Although the Cold War was damaging and debilitating for large populations, it was a great time for stock investors. The Dow Jones industrial average outperformed the market recessions and regional conflicts.
Will the conflict impact the Indian Economy?
Yes, absolutely. The Russia-Ukraine conflict is seriously impacting the Indian economy. Here’s the breakdown of effects the Indian economy is currently facing owing to the massive dispute.
- Inflationary, budgetary, and external-sector concerns are all posed by the rise in petroleum prices.
- Crude oil-related items account for about 9% of the WPI basket. A 10% spike in oil would result in a 0.9 percent increase in WPI inflation, according to research by Bank of Baroda chief economist Madan Sabnavis.
- Although India imports more than 80% of its oil, oil imports account for only around 25% of its overall imports. The current account deficit — the difference in the value of goods and services imported and exported — will be impacted by rising oil prices.
- “Baseline prediction for WPI is 11.5-12 percent for FY22 and 6% for FY23,” according to the paper, “which may increase by about 0.9-1 percent due to increased oil prices.”
- “As oil prices soared, the share of oil imports in India’s total imports increased to 25.8% in FY22 (April-December 21).” With oil prices rising once again, the cost of oil imports gets projected to skyrocket.
- It is anticipated that a 10% increase in oil prices will result in a $15 billion increase in India’s CAD or 0.4% GDP. Sabnavis projected that this would have a detrimental impact on the INR in his study.
- The subsidy on LPG and kerosene gets expected to climb with crude oil prices, increasing the subsidy cost.
What would be the immediate market effects?
There’s no denying that the the market is witnessing huge impacts owing to the conflict. Some of them are listed here.
- Oil is already expensive, with prices surpassing $100 per barrel, up from around $65 a year ago. It gets expected to rise even further, especially if Russia launches a full-scale invasion in exchange for tough financial penalties imposed by the US and its allies.
- Consumers are already suffering from high oil costs. They are reflected in the most visible indicator of inflation in the United States, the cost of fuel, which, according to AAA, now averages $3.53 a gallon. Inflation in the United States is already at 7.5 percent, a 40-year high.
“Much would rely on if Western sanctions get imposed on Russian energy corporations, and Russia decides to block energy supplies to the West,” Caroline Bain, chief commodities economist at Capital Economics, wrote on Feb. 16. “Oil and gas prices may increase twice their value, while the gas prices might linger for longer,” she added in the worst-case scenario.
However, many analysts, like Capital Economics, believe that such a terrible consequence is improbable. Even if energy prices continue to rise due to financial market speculation, they are expected to fall quickly due to fundamental supply and demand, according to Edward L. Morse, Citigroup’s global head of commodities research and a former deputy assistant secretary of state for international energy policy.
He also predicted that long-term “disruption in the supply of Russian oil or natural gas” would be improbable because shutting off Russian exports is not in the interests of Russia, European customers, or the United States.
Mr. Morse forecasts a drop in oil prices to less than $65 per barrel by the end of the year, with further supplies likely coming from Iraq, Venezuela, the United States, Canada, and Brazil. A diplomatic agreement between the United States and Iran may add over one million barrels per day. He also believes that if the Federal Reserve and other central banks continue to tighten monetary policy to combat inflation, the economy will cool, lowering energy demand, and therefore adding to the momentum of lower energy prices.
Conclusion
Global markets usually recover after wars and natural disasters, and they get expected to do so again this time. The threats posed by Russia’s nuclear weapons, on the other hand, are dangerous.
Global markets get weakened as conflicts approach, strengthen long before hostilities conclude, and treat human tragedy with utter indifference. Russia’s President Vladimir V. Putin has already caused global stock, bond, and commodities markets to tremble.
That’s all about it!! Stay in touch with us and we’ll keep you posted about this massive dispute.