The market was rattled after the US said Russia could invade Ukraine at any time and might create a surprise pretext for the attack. An invasion could trigger harsh sanctions against Russia, the US and other Western powers have warned.
Russia is one of the biggest exporters of oil & gas, and any military conflict can create a major imbalance in global supply at a time both oil and gas markets are already tight.
The producers’ club, known as OPEC+ and comprising nearly two dozen countries led by Saudi Arabia and Russia, has been announcing an increase in oil supplies every month for the last several months. But some of the OPEC+ members haven’t been able to pump enough to meet their production quota, resulting in supply lag. Several analysts expect prices to hit $100 per barrel in case of a Russia-Ukraine military conflict.
Meanwhile, global demand for oil has been surging, with countries lifting Covid and travel restrictions. Higher fuel prices have stoked inflation in several economies across the globe, forcing central banks to begin rolling back easy monetary policy.
In India, state-run refiners have kept retail prices static for more than three months in what is widely believed to be a pause due to state elections. They are expected to bring in substantial hikes soon after the elections to align domestic rates with international prices.
Higher retail prices could translate into increased freight and trigger wider inflation in the economy. This may prompt the government to slash duty on fuel.
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