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While inflation and job shortages have been major concerns for the Modi government, the Russia-Ukraine conflict has quietly emerged as a significant challenge shaping India’s economic landscape.
Although the war is taking place thousands of miles away, its ripple effects have severely disrupted global supply chains, particularly in energy markets, impacting India’s imports and driving up inflation.
Yet, India has shown impressive resilience in navigating these global disruptions. The government has managed to address inflationary pressures while keeping oil prices relatively stable, thanks to strategic diplomacy and well-calibrated economic policies.
The Russia-Ukraine Conflict and Its Impact on Global Supply Chains
The war between Russia and Ukraine, which began in February 2022, has sent shockwaves through global trade, especially in oil, gas, wheat, and fertilisers. As one of the world’s top oil producers, Russia’s supplies were heavily impacted by sanctions imposed by Western nations. This led to a global energy crunch as European countries scrambled to find alternative sources, driving up prices worldwide. For India, which relies on imports for nearly 80% of its crude oil, this disruption posed a serious economic challenge.
In spite of this, India has effectively managed the crisis. While global oil prices surged, India secured discounted oil from Russia, softening the impact of price hikes. Additionally, India’s deft use of diplomatic relations allowed it to maintain critical energy imports from Russia while preserving its ties with Western nations. This balanced strategy has been instrumental in preventing domestic fuel prices from spiralling out of control, unlike in many other countries.
India’s Strategy to Keep Oil Prices in Check Amid Global Volatility
One of the most disruptive outcomes of the conflict has been the extreme volatility in global oil prices, which have fluctuated between $70 and $120 per barrel. Such price swings could have triggered a severe inflationary crisis in India, where fuel imports are crucial to the economy. Rising fuel costs directly affect transportation, which in turn impacts all sectors, from manufacturing to agriculture.
India’s strategic pivot to buying discounted Russian oil, however, has provided a cushion against these shocks. The Modi government seized this opportunity, transforming Russia from a minor supplier to one of India’s top oil sources. This shift helped India secure a steady supply of oil while preventing drastic price increases on the domestic front.
In addition, the government introduced fuel subsidies to alleviate the burden on consumers. Although these subsidies redirected funds from other welfare programs, they helped prevent a sharper rise in inflation and protected millions of Indian households from surging fuel costs. This measured approach ensured that inflation, while still present, did not reach destabilising levels for the economy.
