Just a week ago, Goldman Sachs was predicting that we could be paying US$105 per barrel of crude oil by 2023.

Well, get ready to tighten your belts because JPMorgan thinks the Yaris-loving crew at Goldman were being a little optimistic – its own team of Hummer-driving economists now reckon benchmark Brent crude oil could soar as high as US$150/bbl during the current quarter – if the tension between Russia and Ukraine results in supply issues.

JP Morgan notes the price of Brent has already climbed 12% since the beginning of this year to just under US$88/bbl due to demand outstripping supply, though it has since eased to US$87.08 thanks to a rising US dollar.

“The latest geopolitical tensions between Russia and Ukraine raise the risk of a material spike this quarter,” JPMorgan economists Joseph Lupton and Bruce Kasman said in a research note.

“That this comes on the back of already elevated inflation—running at a multi-decade high last quarter—and a global economy that is being buffeted by yet another wave of the COVID-19 pandemic adds to the near-term fragility of what is otherwise a fundamentally strong recovery.”

Unfriendly neighbours

Russia has been steadily building up its forces on Ukraine’s border, leading both its neighbour and the US to warn that an invasion could be imminent, which Russia denies.

Tensions between the two countries have been high since Russia annexed the Crimean region following a controversial local referendum in 2014.

In JPMorgan’s scenario, a conflict could result in a 100% surge in Brent crude oil prices over a period of one or two quarters from the average price of US$75/bbl to US$150/bbl if supplies are cut by at least 2.3 million barrels per day, or about 2% of total global supply.

Not the only flashpoint

To make matters worse, there are other factors conspiring to possibly constrain supplies.

Reports of another attempted drone attack in the United Arab Emirates raises the spectre of more attempts that could damage facilities in that region.

This is especially concerning given that the UAE is one of two Middle Eastern OPEC members with the capacity to boost crude oil production as the broader OPEC+ cartel continues to unwind production cuts.

Other OPEC producers have limited capacity to increase production while capital discipline means that the US shale sector is likely to see only limited growth.