The world faces a risk of all-time high oil price of $380 per barrel if Russia retaliates to United States and European sanctions by reducing its crude supply.
This is according to JPMorgan analysts endorsed by Natasha Kaneva in a note to clients seen by Bloomberg.
The Group of Seven (G7) leaders recently discussed a plan to cap the price of Russian oil in order to put pressure on Moscow, which is benefiting from rising energy prices, and cut off its sources of funding for the invasion of Ukraine, which prompted the note.
A price exception could work through a mechanism to restrict or ban insurance or financing for Russian oil shipments above a certain amount. It could prevent spillover effects to low-income countries that are struggling with high food and energy costs.
In order to accomplish this objective, the G7 needed the support of oil-exporting nations in the Organisation of Petroleum Exporting Countries and its allies in a bloc known as OPEC+, which includes Russia.
The European Union still plans to ban imports of most Russian oil from the end of the year. The US, United Kingdom, Canada and Japan will also ban Russian gold imports. France also supported the move.
JPMorgan warned that if the US and European penalties prompt Russia to inflict retaliatory crude-output cuts, the price of oil may rise to an all-time high of $380 per barrel.
JP Morgan analysts stated in a note to clients that Moscow can afford to reduce daily crude production by 5 million barrels without significantly harming the economy given the country’s strong budgetary situation.
However, the outcomes might be terrible for a large portion of the remainder of the world.
According to the analysts, a daily supply reduction of 3 million barrels would cause benchmark London crude prices to rise to $190, while, a reduction of 5 million barrels would result in “stratospheric” prices of $380 a barrel.
“The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports,” the analysts wrote. “It is likely that the government could retaliate by cutting output to inflict pain on the West. The tightness of the global oil market is on Russia’s side.”
