The G7 is hammering out a complex mechanism to cap the price of Russian oil to tighten the screws in Vladimir Putin’s war machine in Ukraine. But given Moscow’s solid fiscal position, the country has the ability to cut crude output by 5 million barrels a day without unduly hurting the economy, JPMorgan analysts including Natasha Kaneva wrote in a note to clients.
For much of the rest of the world, however, the results could be catastrophic.
A 3 million bpd cut in supply would lift benchmark London crude to $190, while a worst-case scenario of 5 million could mean “stratospheric” crude at $380, analysts wrote.
“The most obvious and likely risk of a price cap is that Russia may choose not to engage and instead retaliate by reducing exports,” the analysts wrote. “The government is likely to retaliate by cutting production to inflict pain on the West. The tension in the global oil market is on Russia’s side.”