India faces limited commodity price risk due to Russia-Ukraine conflict, says ICRA

Primary risk is from oil price rise, says ICRA in a report.

A fuel station covers the fuel pumping machine with umbrellas to protect it from sunlight. | Photo Credit: V. RAJU

  India, being a net importer of oil & gas, could see a possible rise in inflationary implications, at the initial stage of the Russia-Ukraine conflict and macro implications would stem primarily from surge in crude oil prices which have crossed $100 per barrel, ICRA said in a report.   It said select sectors such as upstream oil and gas and ferrous and non-ferrous metals could gain as commodity prices are trending at all-time highs, primarily driven by metals and natural gas.   There could be potential negative implications for some of the sectors such as chemicals, gas utilities, refining and marketing, and airlines where oil/gas is a primary input, it said. On the likely impact of the geopolitical development, Aditi Nayar, Chief Economist, ICRA, said, “The macro implications of the geopolitical crisis will stem primarily from the surge in crude oil prices, as Russia does not have major share in India’s trade basket.” “Though the Indian rupee has been relatively range-bound in 2022 so far, despite elevated crude oil prices, pessimistic global sentiments along with a stronger U.S. dollar, could weaken the Indian rupee going forward,” she said. “On the positive side, India’s large forex reserves and a current account deficit expected to remain below 3% of GDP even in the event that crude averages $100/barrel in FY2023, are likely to avert a depreciation in the Indian rupee beyond 78.0/U.S. dollar in H1 CY2022,” she added.   ICRA which analysed the potential implications for some of the sectors like upstream oil and gas, gas utilities, refining and marketing, ferrous and non-ferrous metals (aluminium, steel etc), chemicals and fertilizers said domestic natural gas prices are expected to increase owing to increase in prices at international hubs and these along with elevated crude oil prices will positively impact the EBITDA of upstream companies. It said City Gas Distribution entities may have to pass on the price increases in a graded manner leading to some lag in full pass through of costs and accordingly pressure on margins.  “Any adverse impact on gas availability to Europe could also result in contraction in chemical industry, which can have cascading effect on global prices for specific products,” it said.   Rohit Ahuja, Head Research and Outreach, “At the initial stage, we believe the implications on India would be restricted to rise in commodity prices. However, there are risks from escalation of this conflict to other parts of Europe, and a further surge in commodity prices”