The unprovoked Russian invasion of Ukraine is a serious threat to the global economy in terms of the disruptions it can cause. These risks are over and above the political uncertainties and the humanitarian crisis of the war. The economic sanctions against Russia will affect the global oil markets with crude oil prices already rising. Fuel prices have their own dynamic effects on inflationary pressures across the world. Europe will be affected the most, both for its territorial proximity to the arena of conflict as well as its dependence on Russian oil. Equity markets will be impacted by the adverse sentiments arising from the aggressive signals coming from Vladimir Putin. Currency markets will be affected by the large-scale economic sanctions against Russia. Russia is supposed to have a comfortable foreign exchange kitty. However, restrictions on international currency transactions in and out of Russia will remove much of the advantages of adequate foreign exchange reserves. By remaining aloof, China has sent a positive signal to Russia. How this plays out in the next few days will show whether or not China leverages the hostility to its own advantage. Global markets are likely to be down, international investors wary, and cross-border trade heavily disrupted.

India’s position is tricky. In not coming to the explicit defence of Ukraine and abstaining from the vote at the United Nations Security Council, it has revealed its strategic dependence on Russia, especially for purchases of defence hardware. The cost is a reputational damage to New Delhi’s democratic image. India will, however, comply with the international sanctions imposed on Russia. New Delhi is initiating humanitarian aid to Ukraine. On the domestic front, any rise in global oil prices would have a strong inflationary effect on price levels that are already rising rapidly. The Reserve Bank of India may be forced to increase policy rates, which, in turn, will have a dampening effect on already sluggish private investment flows. India’s trade with Russia and Ukraine is not very significant. But the Ukraine crisis will have discernible consequences on defence imports from and electrical equipment exports to Russia. According to many economists and analysts, the impact on India will be in the short-term and not structural. This would hold true if there is no further escalation in hostilities. With India just beginning to recover from the disastrous effects of the pandemic, there may not be a return to the old normal. The new normal visible during the last two years may also change. The world may be returning to a new Cold War and India will have to choose between its national interests and the essential values of a liberal State.