Originally Published: 01 MAR 22 03:06 ET

Updated: 01 MAR 22 08:46 ET

By Matt Egan, CNN Business

(CNN) -- Russia faces the specter of a full-blown financial meltdown. Punishing sanctions leveled by the West have sent the ruble crashing to record lows, shuttered Moscow's stock market and made Russian assets toxic on the world stage.

The White House has even taken aim at Vladimir Putin's financial fortress, removing access to at least a chunk of Russia's $630 billion rainy-day fund that was designed to cushion the economic blow of this very crisis.

Now comes the big question: How will Putin — who is also facing sanctions on his personal wealth from the West — fire back in what is rapidly morphing into economic warfare?

There is growing concern that Putin could retaliate by using not just natural gas but also crude oil as a weapon against the West.

"Russia's energy supplies are very much at risk, either due to being withheld by Russia as a weapon or swiped off the market due to sanctions," Louise Dickson, senior oil market analyst at Rystad Energy, wrote in a report Monday.

The worldwide supply of oil was already failing to keep up with demand. If Russia, the world's No. 2 oil producer, intentionally held back supply, it would likely send oil prices skyrocketing, dealing a painful blow to consumers around the world.

JPMorgan has warned that oil would spike to $150 a barrel in the event that Russia's exports are cut in half. That would translate to a roughly 41% increase from the recent high of nearly $106 a barrel.

Gasoline prices would go much higher

That spike would sharply raise prices at the gas pump too. The US national average for regular gasoline already stands at $3.61 a gallon, according to AAA. That's up 8 cents in a week and 25 cents in a month.

Even though the United States consumes very little Russian oil — oil imports from Russia stood at just 90,000 barrels per day in December — this is still an interconnected and global market. Supply shocks in one part of the world can impact prices everywhere.

"It's a wild card if Russia will actually slow those flows to try to inflict pain through commodities," said Ryan Fitzmaurice, energy strategist at Rabobank. "If there are actual supply disruptions, that's the trigger for meaningful price increases."

To be sure, there is no evidence at this point that Russia is cutting off the world from its oil supplies. And the West has gone out of its way to carve out Russia's energy industry from sanctions in the hopes of minimizing the market impact. Putin may very well decide this is one weapon best left unfired.

Russia needs oil revenue more than ever

Not long ago, it was viewed as very unlikely that Putin would resort to weaponizing oil.

Such a strategy risks further enraging the rest of the world against Russia. Worse, limiting shipments of oil would endanger Russia's petro-central economy. Oil and natural gas made up about 43%, on average, of the Russian government's annual revenue between 2011 and 2020.

However, the Russia-Ukraine crisis has escalated quickly, marking the worst fracture with the West since the Cold War. And Putin's aggressive stance and comments have surprised observers, prompting some to question his mental stability and raising concerns about how he will respond to the latest sanctions.

Putin raised eyebrows over the weekend by putting his nuclear forces on high alert. On Monday he lashed out at sanctions imposed by what he described as the "empire of lies."

Putin is also facing pressure from the oligarchs he relies on for support. Russian billionaires Mikhail Fridman and Oleg Deripaska broke ranks with the Kremlin in recent days, calling for an end to the war.

'I became very nervous'

Heartened by the fact that Russia has a long history of reliably supplying oil — even during the height of the Cold War — Natasha Kaneva saw little risk of the country weaponizing its oil exports. But Kaneva, the head of global commodities research at JPMorgan, is no longer feeling so confident.

"I became very nervous after I listened to Putin's speech," Kaneva told CNN last week, referring to the Russian president's hourlong February 21 remarks airing a list of grievances with the West. "To me, it was a watershed moment. I felt everything changed."

The JPMorgan exec believes investors are underestimating the risk that Putin will weaponize oil supplies.

"The market does not need any disruption," Kaneva said. "We don't have any shock absorbers. The reaction in the price will be nonlinear."

None of that is lost on Putin. Nor is the fact that high gasoline prices are deeply unpopular in the United States, contributing to the worst inflation in nearly 40 years.

"Putin could seek to inflict significant pain on Western nations," Helima Croft, head of global commodity strategy at RBC Capital Markets, wrote in a note to clients Sunday, "and commodity prices may feel the impact of his countermeasures."

Mike Sommers, CEO of oil-and-gas trade group the American Petroleum Institute, did not dismiss the risk of Russia holding back oil supplies.

"I do think it's an ongoing concern, particularly as the West responds to the aggressive action from Russia," Sommers told CNN in a phone interview last week. "We would be concerned if he decided to cut off supplies. No matter what he does, the United States will continue to produce in this volatile political environment."

White House has warned Putin not to weaponize oil

Putin does not need to turn the taps completely off to punish the West. Oil markets are so tight that just a modest decrease in supplies from Russia could have a large impact on prices.

"Even if Russia cut supplies by 10% to 20%, the price response would compensate Russia for the loss of supply," said Rabobank's Fitzmaurice.

Even before the invasion began, the White House warned Putin against any drastic steps around his country's energy exports.

"If Putin decides to weaponize his energy supplies, it would be a major mistake," Daleep Singh, US deputy national security advisor, said on CNBC.

The Biden Administration official noted that Russia is "incredibly dependent" on the West as a consumer for its energy supplies.

"This is a long-term vulnerability for President Putin. If he weaponizes energy supply, that's only going to accelerate Europe's and the West's diversification away from Russian energy," Singh said, adding that it would be a "major blunder."