Perhaps you find my headline far-fetched, even alarmist. Well, don’t just take my word for it. Major analysts on Wall Street are currently predicting that the price of crude oil could reach $200 per barrel, perhaps even higher, by the end of the month. Below, I examine the turmoil besetting the energy markets and what it means for investors.

Ordinarily, a resurgent energy sector indicates overall economic health. But in this case, the rise in energy prices has been too fast, too far. The risk is runaway inflation, economic destabilization, and a demoralized consumer that tightens the purse strings.

Gasoline prices have surged about 12% over the past seven days alone. As of this writing on Tuesday, the nationwide average cost of a gallon of gasoline is $4.17, the most expensive in U.S. history. The previous national high was $4.11 per gallon reached in July 2008.

The Biden administration has said it might implement an outright ban on Russian oil imports. Western nations are contemplating the same step. If we see a Western embargo of Russian oil…watch out. We could face an oil shock reminiscent of the 1970s.

Many options traders and influential investment banks are betting that oil could soon reach $200/bbl in the coming weeks. The Russia-Ukraine war and its resulting economic sanctions are the main factors, but also pushing oil prices higher are economic growth and supply-and-demand imbalances caused by the pandemic.

According to ICE Futures Europe data compiled by Bloomberg, more than 1,200 contracts were traded Monday for the option to buy Brent Crude future for May at $200 per barrel. On the same day, Brent North Sea crude, on which international oils are priced, jumped to $130/bbl before settling down into the $120s.

Analysts at Bank of America (NYSE: BAC) currently predict that if the majority of Russia’s oil exports are banned by Western sanctions, the oil market could get hit with a five million barrel per day shortfall, which could trigger an oil price surge to $200/bbl and beyond.

JPMorgan Chase (NYSE: JPM) analysts predict that if Russian oil supply continues to contend with the economic sanctions and impediments already in place, Brent could end 2022 at $185/bbl.

The West has stopped short of a Russian oil embargo, for now, but other steps have seriously hampered Russian energy production, such as the abandonment of Russia by several super majors.

Read This Story: “Big Oil” Says Nyet to Russia

The following chart shows the powerful upward momentum of oil prices over the past month:

During the worst of the coronavirus pandemic, we witnessed chronic under-investment in energy production because of the collapse in demand. Now that the economy is rapidly opening up, there’s a shortfall of supply.

If oil prices get too high, they raise household and corporate costs and ignite inflation. But if they get too low, as they did during the pandemic-induced recession in 2020, they indicate lack of economic activity and scores of jobs are lost in the energy sector and its ancillary segments. Energy equilibrium is the goal and it’s far from sight.

From Rockefeller to Putin…

When pressed by a young investor in 1924 as to how Standard Oil stocks would do, John D. Rockefeller pondered a while and finally said: “Young man, I think they will fluctuate.”

Energy stocks certainly have fluctuated over the past several months, subjecting investors to wild roller-coaster rides.

Soaring crude oil prices and a fast-mending economy helped the energy sector post the stock market’s biggest gains in 2021. An even stronger performance for energy equities probably lays ahead.

The benchmark SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has generated a year-to-date total return of 10.68%, compared to -9.50% for the SPDR S&P 500 ETF Trust (SPY), as of market close March 7.

As the news from Ukraine worsened on Monday, the major U.S. stock market indices plunged, with the S&P 500 nosediving by 2.95%. In pre-market future contracts Tuesday, stocks were mixed.

The geopolitical crisis threatens to usher in a recession. Not even energy producers want $200/bbl, because it would kill economic growth and hence demand.

The White House faces a dilemma: it wants to punish Russia, but rampant inflation would annihilate the Democratic party’s chances in the 2022 midterms.

The energy sector and by extension the financial markets are at the mercy of the whims of Russian President Vladimir Putin. Ukraine is caught in a vise, and so are global investors.

Stick to your long-range investment plans. Make sure at least 25% of your portfolio contains hedges, particularly commodities and hard assets. If you’re properly diversified, you should be able to ride out the crisis.

John Persinos is the editorial director of Investing Daily.

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