Rajan believes the escalating tensions between Russia and Ukraine have the potential to affect not just oil and natural gas but essential commodities like wheat
Former RBI governor Raghuram Rajan, speaking exclusively with CNBC-TV18 on the simmering tension between Russia and Ukraine, said those who depend on the region’s rich supply of natural gas and other essential commodities could feel the pain.
‘Supply of natural gas limited’
On the global economic recovery, Rajan said recovery is at risk as markets across the world are already under stress. Stressing on the impact of military action on oil supplies, he said it would be difficult to keep pace with the demand as natural gas reserves are limited.
“Recovery is at risk. It comes from the price of energy, from natural gas in Europe. More generally, oil from across the world. The concern is more about natural gas which is limited in supply and harder to get to the right places,” he said.
‘Scope to ramp up oil production’
“There are scopes to ramp up production of oil from OPEC, if Iran comes back to the fold. Right now, production is 2 million barrels a day and this is below its peak,” Rajan pointed out.
‘Grain prices could rise’
Rajan believes the Ukraine-Russia crisis has the potential to affect not just oil and natural gas but various essential commodities like wheat. “Grain prices can also go up because Ukraine and Russia contribute a great amount of wheat exports to the world.”
On US Fed policy
Sharing his views on the US Fed’s policy stance, he emphasised that there is a need to balance out the over-tightening rates.
“If inflation in industrial countries was low, if inflation in the US was low, the Fed would have got clarity as to what to be done. With inflation where it is, the Fed will have to balance out the risks of over-tightening,” the former RBI governor said. “The Fed may start tightening in its March meeting. It may start at a steady pace rather than in an abrupt manner.”