Ukraine-Russia crisis: Why should India care

Ukraine's biggest national flag on the country's highest flagpole is seen at a compound of the World War II museum in Kyiv, Ukraine. (File photo: REUTERS/Valentyn Ogirenko)

What is happening at the Ukraine-Russia border? Russia is deploying troops, around 100,000 personnel. 

Why? Ukraine made friends with NATO or the North Atlantic Treaty Organisation.

Did it become a member of NATO? No. It wants to, but it hasn’t been invited for membership yet. 

Ouch! Ouch is right. But, Ukraine has NATO’s 2016 Comprehensive Assistance Package, through which the Eastern European country is encouraged to beef up its security and defence sector.

And Russia is furious because? Russia has always thought of Ukraine as part of its sphere of influence. When Ukrainians voted out a pro-Russian head of state in 2014, Russia must have got a little worried, because it took Ukraine’s southern Crimean peninsula and egged on separatists to go take over eastern Ukraine. It didn’t please Ukraine, obviously, which then reached out to NATO for help. 

Read also: Why Russia might invade and why the US is involved

Okay, so why should we care? The US and Europe are threatening Russia with sanctions, and this widespread discord can affect our economy along with other economies. 

How? For one, it could affect equity investors. Indian markets have already been volatile, with the volatility index (VI) rising from January 21 and peaking at January 24, before cooling off. The geopolitical tensions add to the uncertainty, even globally. “Global markets witnessed roller coaster (sic) as investors remained cautious over tensions between Russia and Ukraine, along with the prospect of monetary policy tightening. Rising crude oil prices too impacted sentiment adversely,” said Siddharth Khemka, Head - Retail Research, Motilal Oswal Financial Services, in a daily market commentary statement. “Global cues, quarterly results and the upcoming Union budget would be some of the key factors driving the (Indian) market direction in the near term,” he added. 

What else? It could mess with India’s LNG (liquified petroleum gas) plans.

Do we have LNG plans?! Yup. The country is trying to reduce its dependence on crude oil, by increasing the share of LNG in the energy mix to 15%... from the current 6.3%. 

Why? Well, for one, crude oil prices keep going up. For another, LNG is a cleaner fuel.

So why would these plans be derailed? We produce around 50% of our LNG requirement from places such as Qatar and Australia and also buy from the spot market. If Russia faces sanctions, then Europe would have to buy from the open market, which drives up LNG prices for everyone else… like us. Asia was already in a bidding war with Europe for LNG, which pushed prices up in 2021. Now, when there is a conflict, its prices will skyrocket. 

Read also: What are US options for sanctions against Putin?

What do we really use LNG for? For heating, electricity, to manufacture things such as medicines and fertilisers… So prices of all of this could go up. In fact, this thing could derail India’s plans to power fertiliser plants with LNG. 

It’s all bad news then? Hmmm, not so much for wheat producers. Russia and Ukraine supply 30% of the world’s wheat exports. If Ukraine cannot supply because of an invasion or if Russia faces sanctions and therefore cannot supply, then India’s wheat producers could stand to gain. An SBI Research Ecowrap report, released on January 26, said, “The potential conflict between Ukraine and Russia would be felt across a number of markets, from wheat and energy prices. The current round will be the second round of such hostility with first such episode happening in 2014.”

2014… the year Ukraine voted out the pro-Russian president? Yes, that’s the one.