Ukraine-Russia stand-off to hit India’s trade with CIS

India's rising trade with Ukraine and other CIS countries could be hit hard if the current stand-off between West-backed Ukraine and Russia escalates and stretches over a longer period of time.

The prevailing crisis in Ukraine has already escalated the prices of imported crude sunflower oil. Import shipments from Ukraine are getting delayed thereby pushing up the prices of the edible oil by about 10-12 per cent in less than a month.

Sunflower oil accounts for about 10 per cent of India's total edible oil imports of over ten million tonnes per annum.

India imported about 973,126 tonnes of sunflower oil during 2012-13, most of it from Ukraine – the largest producer of sunflower seed in the world, the Solvent Extractors' Association of India (SEA) data for the current oil year (November-October).

India has imported 362,736 tonnes of sunflower oil during November 2013-January 2014 period, which is 1,15,951 tonnes (or about 46 per cent) more than imports from the same period of the previous year, as per the SEA data.

CIF prices of sunflower oil have spurted to $955-960 per tonne (ex-JNPT) from around $895 per tonne, as per the data provided by the SEA.

Domestic prices of sunflower oil have increased to Rs66,000 per tonne from Rs60,500 a month ago.

Commodity prices in general tend to rise in conflict situation and this could jack up prices of crude oil and gold prices. Gold futures are already trading at a four-month high.

The rupee has also weakened to 62.14 against the dollar amid broad dollar gains against emerging market currencies. In case the Reserve Bank of India intervenes to support the rupee, this could still cause a flight of capital, which in turn would further erode the rupee value.

Ukraine is an important supplier of edible oil, petroleum products and fertiliser to India and a growing market for India's pharmaceutical products.

India's annual trade with Ukraine in 2012-13 stood at $3.15 billion while its trade with all CIS countries was valued at $11.5 billion.

Indian exporters confirm that shipments have been moving smoothly across Ukraine despite the political upheaval in the country over the last few weeks.

But once Russia sends its troops into Ukraine and block its harbours, shipments to and from Ukraine and neighbouring countries could get affected, the point out.

The CIS is an important region for India's market diversification programme that aims to reduce the country's dependence on traditional markets such as the US and the EU.

The commerce ministry also offers incentives to exporters to countries in the region.

Gold imports to India have come down sharply over the last few months, so a rise in gold prices might not adversely affect the economy, but rising Brent prices will have a grave impact on the country as India will have to spend more dollars to buy Brent as it is dependent on imports for its energy needs.