Global crude oil and gold prices rose Thursday, February 24,  after Russian President Vladimir Putin ordered military action in eastern Ukraine. Indian indexes began with a gap down on Thursday with the Nifty falling below 16,600 due to escalating geopolitical concerns in Eastern Europe. The Sensex fell 1,426.28 points, or 2.49%, to 55,805.78, while the Nifty dipped 407.80 points, or 2.39%, to 16,655.50. Approximately, 270 shares have advanced, 1,853 shares have declined, and 79 shares have remained constant.

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The rise in crude oil prices has been driven mostly by concerns about supply interruptions as Russia invades Ukraine. A Russian invasion of Ukraine might not only impair global crude supply but also lead to sanctions imposed by the United States and Europe. Oil prices have risen in recent months due to supply worries following tensions between Russia, the world’s second-largest oil producer, and Ukraine.

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Oil prices, which have been volatile in recent weeks due to the Ukraine-Russia conflict, jumped beyond $100 per barrel in Brent futures for the first time since 2014, as traders anticipated more sanctions would harm Russia’s crude oil exports. At 9:20 a.m., Brent crude oil futures were up 3% at $99.72 a barrel in Asian trading.

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Crude price increases pose inflationary, fiscal, and external-sector risks. Crude oil-related products account for more than 9% of the Wholesale Price Index (WPI) basket, and a 10% increase in crude would result in a 0.9% increase in WPI inflation, according to a report by the Bank of Baroda chief economist Madan Sabnavis.

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“Our baseline forecast for WPI is 11.5-12% for FY22 and 6% in FY23, which might increase by around ~0.9-1% because of an increase in crude prices,” says the report.

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India imports more than 80% of its oil requirement, but the share of oil imports in its total imports is around 25%. Rising oil prices will impact the current account deficit — the difference between the values of goods and services imported and exported.

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“In FY22, the share of oil imports in India’s total imports has increased to 25.8% (Apr-Dec ’21) as oil prices inched up. With oil prices on an uptrend again, the oil import bill is likely to swell further. This will have an impact on India’s external position. We estimate that a 10% hike in oil prices will lead to an increase of India’s CAD by $15 billion or 0.4% of GDP. This will have a negative impact on INR,” Sabnavis said in his report.

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The increase in crude oil prices is also projected to raise the subsidy on LPG and kerosene, increasing the subsidy bill.

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Investor mood has deteriorated in recent days as crude oil prices have risen. As of February 22, FIIs had sold Rs 55,570.45 crore of equities in 2022, while DIIs had purchased Rs 44,859.29 crore of equities. According to preliminary data from the NSE, FIIs sold Rs 3,417.16 crore, while DIIs purchased equities worth Rs 3,024.37 crore on February 23, resulting in a decrease and volatility in equity markets. As per the fund managers, markets are expected to remain turbulent in the short term.