Russian Roulette

by Murali Gopalan 25 Feb 2022


Barely two months into 2022 and the world has turned upside down once again with Russia’s invasion of Ukraine. 

It was not entirely unexpected even while the global community was keeping its fingers crossed hoping that Russian President, Vladimir Putin, would change his mind. He clearly has different ideas and is keener about reestablishing his country ’s supremacy as a formidable global power.

The sanctions that followed were only inevitable but that is not going to deter Putin. China could also be watching the unfolding of the drama with great interest. Premier Xi Jinping, like his Russian counterpart, also has his own dreams for the country and will stop at nothing to achieve them. There are fears that China will now be emboldened by Russia to pursue its own intent of invading Taiwan.
The US could be frothing at the mouth with a host of Western allies but immediate retaliation may not be the wisest of moves at a time when the global community still has not recovered from the pandemic. There are still many pockets of tension like Canada where truckers recently formed a blockade as part of the anti-vaccine protests. Things are limping back to normalcy now but there is no telling when tempers will boil over again in another part of the world.

For now, Russia’s aggression will dominate headlines and will have its repercussions in the rest of the world. There is concern that the country will now move closer to China which has openly condemned the Ukraine aggression. If these two powers were to come closer together, the West could find itself on a limb. Placating Putin is out of the question now since he has decided to turn rogue and the only way out now is to get back to the negotiating table and work out a solution.

Where does that leave India? The Ukraine 
crisis predictably had its first major fallout in 
global crude prices which breached the $100/barrel mark and could continue spiralling. Oil, as it is 
often said, is a political commodity which reacts violently to any upheavals worldwide. One can 
only hope that things do not get as dire as the 2008 days when crude touched neatly $150/bbl and threw life out of gear.

Those were the days of subsidies in India and the common man did not have to feel the impact at the retail outlet where he continued to pay much lesser than the actual price of petrol and diesel. The oil companies were asked to bear the difference which the Centre later squared up by way of oil bonds. It was a tedious exercise and saw some perverse results like wealthy customers using subsidised diesel for their expensive SUVs.
Since the time the BJP came to power in 2014, oil prices have remained largely benign. Both petrol and diesel have been yanked out of the administered pricing mechanism and are now completely deregulated. As a result, the excessive dieselisation seen a decade earlier has now reduced to a trickle since users have realised that the price differential vis-a-vis petrol is hardly an advantage.
The problem is that the customer has not benefited from the long run of low crude oil prices since the Centre has been levying more taxes on both fuels to increase revenue. There was a marginal reduction carried out recently and prices have not been touched for a while thanks to the assembly elections. Now with global crude set to remain high at over $100/bbl, the policymakers in New Delhi have their work cut out. 

Thanks to the Ukrainian crisis, the Budget math has gone for a six. A hike in fuel prices is inevitable since the oil marketing companies cannot bear the pressure forever and will have to pass on the cost burden. Customers are not going to be pleased with such a move and the only way out is to reduce taxes on petrol and diesel while foregoing revenue. Will the Centre bite the bullet?