The rising price of crude oil due to the ongoing Russia-Ukraine conflict is burning a hole in our pockets. Everyone around the world is feeling the pinch.

Just as the global economy started registering signs of recovery from the negative effects of the pandemic, the war  exacerbated the situation. 

If anyone has been following the recent oil price news, it would appear to be all doom and gloom. Thankfully, there are steps you can take as an investor to protect your global investments. Let’s examine how the oil price rise affects the global economy

Stock Market

Researchers at the Federal Reserve Bank of Cleveland have recently discovered that there is hardly any correlation between the stock market and oil prices. Surprising, isn’t it? However, this study doesn’t imply that oil prices have little bearing on stock market prices; it only suggests that experts cannot predict the manner in which stocks react to oil price rises.  This is because correlation isn’t causation. 

An economist at the IMF named Andrea Pescatori put the above theory to test in 2008. He discovered that no correlation exists with a confidence level of 95%. Conventional wisdom suggests that an oil price rise would lead to increased input costs for business owners as well as lower demand from consumers who are spending more on fuel, thereby reducing corporate earnings. In the same vein, the opposite should happen when oil prices drop. However, Pescatori discovered that the variables moved in the same direction occasionally with the relationship being weak. 

On the other hand, high oil rates can lead to job creation and increased global investments as it becomes feasible for oil companies to take advantage of higher-cost shale oil deposits. Having said that, soaring oil prices negatively impact businesses and consumers with increased manufacturing and transportation costs. 


There is a strong correlation between the spot price of oil and transportation. This is common sense as transportation requires fuel. Maybe in the future the dynamics might change due to rapid electrification of vehicles, but for now, the rising oil prices have a domino effect on the rates of other commodities. 


We have seen in the past that high oil prices have a pronounced impact on the Indian rupee, as India imports a large chunk of its crude requirements. As seen in the oil prices chart, if current trends continue, then the rupee is bound to depreciate. This will have an overall reverberating effect on the Indian economy and the stock market.  In such a scenario, the RBI intervenes to arrest the rupee’s fall. 

Current and Fiscal Deficits 

India meets its crude oil requirements through imports. Our increasing dependency on these imports means expenditure rises as oil prices surge, thereby negatively affecting the country’s current account deficit. 

Always remember, nothing is permanent. There is a lot of flexibility associated with global investing – and you can always turn a crisis into an opportunity by taking the right steps. 

When commodity prices rise, you can reorient your portfolio tactically by taking higher exposure to commodities both directly and via commodity stocks.

Need expert help with this? Click here to Enquire and we will be there to hold your hand through it all with our global advisory services.

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