Deloitte India partner Rajat Mahajan says the auto industry was hoping to recover from the positive cues visible on semiconductors issues along with the slowdown in demand due to the pandemic, with some adverse impacts from the current situation.
Mahajan says that at a stage where two-wheeler sales are at a record low and the industry is trying to bounce back, any increase in oil prices will certainly affect consumer sentiments. Any change in crude oil prices is likely to impact demand. Unless retail fuel prices follow the same trend, the margins of OMCs will be affected.
The current war between Russia and Ukraine will add to the many difficulties already faced by the automotive sector. ACMA Director General Vinny Mehta said, “We are looking into the situation and hope that things will return to normal soon.”
Russia is one of the largest exporters of palladium which is used in automotive exhaust systems. In the current circumstances, there could certainly be an increase in commodity prices in metals like copper, palladium and others, which will increase the cost of manufacturing vehicles for the OEMs.
Experts say that since Russia is one of the largest producers of crude oil, the current crisis could push oil prices above $100 a barrel in a few days. An analysis by JP Morgan said a $150 per barrel increase in oil prices would reduce global GDP growth to just 0.9 per cent.
Analysts say that rising crude oil prices have an impact on global GDP. According to MK Surana, Chairman and Managing Director of Hindustan Petroleum, there is a shortage of 9,00,000 barrels of crude oil per day at present and it is certain that the Russia-Ukraine crisis will affect crude oil prices in the coming days.
According to reports, more than half of India’s gas requirement is met by imports of liquefied natural gas (LNG) from Ukraine and a smaller part is also sourced from Russia. “The Russia-Ukraine conflict is likely to see a sharp increase in global oil and LNG prices, which will have a negative impact on net energy importers,” Moody’s Investors Service said.