In 2022, when the Russia-Ukraine war began, international prices of all three Fs – fuel, food and fertilisers – skyrocketed.
Russia launched its full-scale invasion of Ukraine on February 24, 2022. Brent crude prices soared immediately to above $100 per barrel and stayed at those levels till early August, with a peak monthly average of $117.9 in June 2022.
The United Nations Food and Agriculture Organisation’s (FAO) food price index – having a base period value of 100 for 2014-16 – averaged 144.5 points in 2022 and scaled an all-time high of 160.2 points in March. Landed prices of imported di-ammonium phosphate (DAP) and muriate of potash fertilisers in India crossed $950 and $590 per tonne by July 2022, while that of intermediates and raw materials like phosphoric acid, ammonia and rock phosphate hit $1,715, $1,575 and $300-plus per tonne respectively during that year.
The impact then
The Russia-Ukraine conflict’s impact was felt mainly on the merchandise trade account of India’s external Balance of Payments (BoP). The trade deficit – the excess of imports over exports of goods – soared from $102.2 billion in 2020-21 (April-March financial year) to $189.5 billion in 2021-22 and $265.3 billion in 2022-23.
The BOP’s other components, however, weren’t affected. The widening of the merchandise trade deficit was considerably offset by an increased surplus on the so-called invisibles account. The latter pertains to the global flows of services, people, data and ideas, as opposed to the “visible” trade in goods across national borders through sea and by air.
The accompanying table shows that India’s net invisibles surplus went up from $126.1 billion in 2020-21 to $150.7 billion in 2021-22 and $198.2 billion in 2022-23.
Table.
This was largely courtesy of two items, software exports and private remittance transfers by Indian living and working abroad. The two together constituted over 55% of the gross invisibles receipts of $465.8 billion in 2022-23 that, for the first time, even exceeded India’s exports of goods valued at $456.1 billion.
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The higher invisibles surplus resulted in the country’s overall current account transactions deficit being contained at just above $67 billion. India, moreover, attracted capital inflows – basically foreign investment and external commercial borrowings – to the tune of $57.9 billion in 2022-23, further softening the blow from the war.
In 2023-24, as global prices of the 3Fs eased, not only did India’s merchandise trade deficit fall to $244.9 billion. It was accompanied by a still higher invisibles surplus of $218.8 billion, thereby shrinking the current account deficit to $26.1 billion that could be comfortably financed by capital inflows. The latter, at $89.8 billion in net terms, was the highest since the $92.3 billion, $92 billion and $107.9 billion of 2017-18, 2012-13 and 2007-08 respectively.
The situation now
In the ongoing United States-Israel versus Iran conflict, it is fuel, out of the 3Fs, that has borne the brunt of price surge.
The effective closure by Iran of the Strait of Hormuz – the narrow maritime waterway between the Persian Gulf and the Gulf of Oman, through which roughly a fifth of the world’s total petroleum liquids consumption equivalent and liquefied natural gas (LNG) trade passes – has led to Brent crude prices go past the $100 per barrel mark this month.
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The effect on fertilisers has been less, at least for India. The country’s comfortable stocks of urea, DAP and complex fertilisers, besides the next kharif (monsoon) crop planting season being 2.5-3 months away, means no immediate crisis. But with more than 60% of India’s imports of LNG (the basic feedstock for urea) and 80% of inputs such as sulphur and ammonia coming from West Asia, any undue prolongation of this war can have serious implications for India’s agriculture and food security down the line.
As regards the third F, the FAO’s food price index averaged 125.3 points in February 2026 – down from 126.6 points in February 2025 and way below the 2022 peaks following the outbreak of the Russia-Ukraine war.
India has also entered the present war with government stocks of rice and wheat at 99.7 million tonnes (mt) on February 1, an all-time-high for this date and as against 83.8 mt a year ago. This wasn’t the case in 2022, when India harvested a poor wheat crop – due to a sudden temperature spike in March just at the stage of grain-filling – on top of the supply disruptions from Russia-Ukraine.
Compared to then, the situation in food is better, more so as India is set for a bumper harvest of wheat, mustard, chickpea and other rabi (winter-spring) crops. Globally, too, the US Department of Agriculture has projected record production of wheat, rice, corn (maize), sorghum, soyabean, rapeseed and palm oil for 2025-26.
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Like with fertilisers, the problems in food would arise only if the war stretches to the point where farmers struggle to access sufficient nutrients for their ensuing crops.
The real vulnerability for India
The Russia-Ukraine war’s damage to India, as earlier noted, was primarily on the merchandise trade account of the BoP. The West Asia conflict’s ramifications could extend beyond that, to even the invisibles account.
This war is being fought far closer home. According to the Ministry of External Affairs, there are nearly 8.9 million overseas Indians in the Gulf Cooperation Council countries alone: Bahrain (3,27,807), Kuwait (9,95,528), Oman (6,86,635), Qatar (8,36,784), Saudi Arabia (24,63,509) and United Arab Emirates (35,68,848). Reserve Bank of India data shows these six countries having a combined 37.9% share in the gross remittances of $118.7 billion received by the country in 2023-24.
If the war drags on, pushing the West Asian economies into contraction and forcing large-scale return of Indian workers, it would significantly dent India’s invisibles account surpluses. That would, in turn, cause a ballooning of the current account deficit. And all this comes amid a slowdown in capital flows, which was already putting pressure on the rupee.
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It can be seen from the table that net capital inflows to India plunged from $89.8 billion in 2023-24 to $18 million in 2024-25, and turning negative for the first nine months of this fiscal. The drying up of capital flows is also borne out by foreign portfolio investors making net sales of $18.9 billion in Indian equity markets last year and another $7.2 billion so far in 2026.
The world, and India, have adjusted to the Russia-Ukraine conflict that continues to rage for four years and counting. Neither – India definitely – can afford the consequences of a similar war in the Middle East lasting even four weeks, leave alone months.
