Energy in Turmoil: How the Russia-Ukraine Conflict is Reshaping Global Markets and India’s SMEs

The Russia-Ukraine war, now a persistent geopolitical reality since 2022, continues to ripple through global energy markets. From exporters and importers to trading hubs, utilities and energy-intensive industries, the conflict has fundamentally altered how energy risk propagates across markets. Recent research highlights that such geopolitical stressors amplify risk spillovers across energy subsectors including oil, gas and associated equities impacting stakeholders far beyond the immediate theatre of conflict.

In other words, the war is not just a European problem; its tremors are felt globally, influencing oil and gas pricing, equity markets and financial instruments. For countries like India, heavily reliant on imported energy, understanding these dynamics is critical for both policymakers and businesses, especially micro, small and medium enterprises (MSMEs).

The Shock Unfolded: From Trade Disruption to Market Volatility

The invasion of Ukraine disrupted global trade flows, triggered sanctions and injected a persistent “security premium” into energy pricing. In early 2022, the immediate fallout was a spike in wholesale oil and gas prices and a sudden re-routing of Russian pipeline gas into LNG markets. Over time, these changes altered the structure of global energy trade, strengthened the LNG market’s role and forced governments worldwide to diversify suppliers and accelerate investments in energy security and renewable alternatives.

Even as headline energy prices have moderated from their record highs, volatility remains, and regional disparities persist. Markets continue to react sharply to geopolitical developments, demonstrating that the energy shock is no longer a temporary spike but a structural feature of the global system.

Why Energy Spillovers Matter

Recent academic studies show that geopolitical stress increases interconnectedness among energy markets. A shock in one node for example, Russian gas propagates through commodities, equity markets and financial channels, affecting traders, refineries, utilities and end-users globally. While some studies focus on China’s energy subsector stocks, the findings are applicable worldwide: stronger spillovers lead to greater co-movement of prices and higher systemic risk for companies exposed to energy costs or international trade.

In practice, this means that even distant economies are vulnerable to price volatility, supply disruptions and investment uncertainty triggered by conflicts thousands of miles away.

Global Market Shifts: How the Conflict Reshaped Energy

The war has catalysed three key structural shifts in energy markets:

1. Diversification of Supply: Europe’s reduced access to Russian pipeline gas triggered a scramble for LNG and alternate energy sources, tightening global LNG markets and driving up shipping and liquefaction costs.
2. Heightened Risk Premiums: Sanctions, export controls, and periodic strikes on energy infrastructure increased the tail-risk for oil and petroleum products, producing episodic price spikes and elevated option premia.
3. Strategic Policy Responses: Governments accelerated stockpiling, long-term offtake agreements, renewable energy deployment and critical material supply-chain reshuffles. While these measures reduce reliance on single suppliers, they also entail higher investment costs in the short term.

The International Energy Agency (IEA) reports that these dynamics continue to influence pricing, investment flows and long-term energy planning, making global energy security a permanent consideration rather than a temporary reaction.

India’s Macro Cushion: A Unique Advantage

India’s current macroeconomic context provides a remarkable buffer against these global shocks. Despite international volatility, India’s headline inflation is unusually low CPI at 1.54% year-on-year in September 2025 and GDP growth remains robust. This rare combination offers policymakers greater flexibility to absorb external shocks without triggering recessionary pressures.

This cushion is supported by falling food prices, robust supply-side management, and strategic energy policies, creating a favourable backdrop for domestic businesses and SMEs to navigate global energy uncertainties.

India’s Exposure: Mixed but Manageable

India’s interaction with global energy markets is complex:

• Crude and Refined Products: As a major net oil importer, India has leveraged diversified sourcing, competitive refinery margins and strategic reserves to limit price pass-through. While global crude cycles influence domestic prices, currency stability and fiscal buffers help shield consumers and businesses.
• Gas and LNG: The tightening of Asian LNG markets prompted India to secure long-term contracts and expand regasification capacity, mitigating volatility in industrial and power sectors.
• Financial Markets & Equities: Energy shocks heighten co-movement among energy stocks and related industrial sectors. However, India’s diversified services-led economy reduces overall vulnerability compared to energy-intensive countries.

SMEs: Vulnerable but Adaptable

Micro, small, and medium enterprises face heightened risk from energy price volatility due to thin margins, limited hedging, and constrained finance access.

Challenges include:

• Rising fuel and electricity costs eroding profits.
• Supply chain disruptions from freight spikes or outages.
• Unpredictable input prices complicating inventory and cash flow management.

Resilience factors in India:

• Low inflation and falling power and fuel costs offer a partial buffer.
• Access to government programs supporting renewable adoption (rooftop solar, energy-efficient motors).
• Opportunities in energy transition sectors such as renewable installation, battery manufacturing and energy-efficiency services.

For SMEs, adopting distributed energy systems and energy-efficient practices can reduce vulnerability while creating new business opportunities in a transforming market.

Balancing Risks and Buffers

The risks of renewed hostilities, sanctions escalation, or infrastructure attacks remain real, capable of jolting oil, LNG and electricity markets and causing short-term inflation spikes. Academic research emphasizes that energy shocks are interconnected globally, meaning a disturbance in one region transmits across borders and sectors.

Yet India’s macro buffers low inflation, GDP growth above 6%, rising LNG capacity and a maturing renewable pipeline allow calibrated policy and business responses, reducing the need for panic-driven measures.

Practical Takeaways

For Policymakers:

• Maintain strategic petroleum and gas reserves and diversify supplier relationships.
• Support energy-intensive SMEs through concessional financing, energy-efficiency schemes and streamlined technical assistance.
• Leverage macro stability to implement targeted measures without reigniting inflation.

For SMEs & Corporates:

• Conduct energy audits and implement low-cost efficiency measures (motors, LED, process optimization).
• Explore captive or on-site renewable solutions and pooled procurement strategies.
• Strengthen working-capital arrangements and consider hedging mechanisms for fuel or power costs.

For Investors & Market Participants:

• Assess correlation risks across energy and industrial equities.
• Diversify portfolios into domestic-focused and services sectors less sensitive to energy shocks.
• Monitor policy interventions that may quickly influence market pricing.

Turning Risk into Opportunity

The Russia-Ukraine conflict did more than create temporary price spikes, it reshaped the global energy landscape, increasing spillovers across commodities, equities and countries. India’s favourable macro environment in 2025 has helped blunt the immediate pain of higher global energy prices, but the experience highlights the importance of resilience, diversification and forward-looking energy strategies.

For policymakers, businesses and SMEs, this is an opportunity to invest in energy efficiency, renewable adoption and strategic supply security. By leveraging the current macro breathing room, India can ensure that future energy shocks transmit less painfully, turning risk into a platform for sustainable growth and competitive advantage.