JP Morgan is warning of the possibility of a catastrophic scenario where by Russia decides to perform a retaliatory crude output cut at some point in response to new US and European sanctions, which their analysts calculate could trigger an explosion in oil, as high as $380 per barrel.

Currently Group of Seven nations are working together to develop a complicated mechanism to try and limit the price Russian oil can demand on the global market, as a way to further punish Vladimir Putin for the invasion of Ukraine. However JP Morgan analysts calculate in retaliation President Putin could cut daily crude production by as much as 5 million barrels without causing excessive damage to the Russian economy.

The effects on the oil market, stretched as thin as it is, could be calamitous, according to their projections. JP Morgan analysts calculate that cutting production by 3 million barrels per day could cause London crude prices to rise rapidly to $190. They calculate a 5 million barrel per day cut would drive prices as high as $380.

The analysts wrote, “The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports. 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.”

Overall, the big uncertainty in the market is what will happen in Ukraine. If Russia pulled out, Europe would be all too happy to end the sanctions regimes to get cheap Russian gas, and the flood of cheap oil could reverse everything, from inflation to interest rates, to the state of the economy. By contrast, if the war continues, things will only get worse.