Western countries have been punishing Moscow for its invasion in Ukraine by mainly imposing financial sanctions that aim to cripple the Russian economy. The move includes phasing out their reliance on Russian energy such as crude oil and gas.
Commodity prices have been surging since the war broke out in February 2022 due to concerns over supply shortage, especially energy supply.
JPMorgan expected global oil prices to reach a ‘stratospheric’ $380 a barrel in a worst case scenario if the U.S. and European penalties prompt Russia to retaliate by cutting crude output.
The analysts stated that due to Moscow’s robust fiscal position, it could afford to slash daily crude production by 5 million barrels without excessively damaging the economy.
The note written by JPMorgan’s analysts stated that a 3 million barrel cut to daily supplies would push benchmark London crude prices that are now around $111 to $190, and the worst-case scenario of 5 million cut could push the price to skyrocket to $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,” JPMorgan’s analysts wrote.
“It is likely that the government could retaliate by cutting output as a way to inflict pain on the West. The tightness of the global oil market is on Russia’s side.”