Russia's Medvedev Says Oil Prices Could Rise to $400 Per Barrel if the West Pushes Russia Too Far

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Echoing concerns around the world's commodity markets, Russia's former president Dmitry Medvedev has said the move to enforce a price cap on Russian crude will drive oil price upwards of $400 per barrel.

The stratospheric price projection was made by Medvedev on Tuesday, days after JPMorgan made a similar projection. Medvedev was reacting to the proposal made by Japan that the price of Russian oil should be capped at around half its current price.

Medvedev Threatens Japan

The world's richest nations made the proposal to stop Russia from funding the Ukraine war using its vast oil revenues. However, in the short to medium term, such an action will remove huge quantities of oil on the market, thereby driving the prices upwards.

An oil tanker unloads crude oil at a crude oil terminal in Zhoushan, Zhejiang province, China July 4, 2018.
An oil tanker unloads crude oil at a crude oil terminal in Zhoushan, Zhejiang province, China July 4, 2018. REUTERS/Stringer/File Photo

According to Medvedev, oil prices could rise to between $300 and $400 a barrel if price cap on Russian crude is enforced, Reuters reported.

Medvedev also said Moscow will also make sure Japan would have neither oil nor gas from Russia. The influential former president also said Tokyo will also be barred from participating in the Sakhalin-2 LNG project.

The Russian Challenge

The Group of Seven (G7) meeting last week agreed in principle to enforce a mechanism to cap the price of Russian oil and gas output. Russia has challenged the western measure and the obvious result would be a slashing of crude and natural gas output by Moscow.

Russia is flush with cash at the moment despite the Ukraine war, and is in a fiscally stable position that allows it to reduce the output by millions of barrels per day without any real impact on its economy.

However, this will lead to a supply crunch around the world that cannot be easily addressed by other major oil producers. According to some projections, Russia can afford to slash production by about 5 million barrels per day.

Major russian gas pipelines to Europe
Major russian gas pipelines to Europe Wikimedia Commons

JPMorgan Projection

A few days ago, JP Morgan warned that oil prices could shoot up astronomically if tensions caused by the Ukraine war persist. The bank's price prediction verges on the unseemly terrain but the analysts insist that if the West forces Russia into unrealistic output cuts, prices can rise as high as $380 per barrel.

JP Morgan says the "stratospheric" rise of oil price will happen in the wake of the US and European punishment for Russia over the Ukraine war.

"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," the analysts wrote, according to Bloomberg.

This article was first published on July 5, 2022