The surging price of oil is now the most significant risk to U.S. economic growth in 2022, Bank of America Research wrote in a note on March 4.

In a March 4 note to clients, Ethan Harris, the bank’s head of global economics research, detailed a scenario in which U.S. GDP growth could be cut by 1% over the next year if oil prices remain above $100 per barrel amid Russia’s invasion of Ukraine.

The bank’s analysts said an even higher cost might even be in the cards if the U.S. or NATO move to curb Russian energy exports altogether, forecasting a shocking $200 barrel of oil. A rise in oil prices of that level could lead U.S. GDP growth to take a 2% hit in 2022, Harris believes.

“If West cuts off most of Russia's energy exports it would be a major shock to global markets,” Harris wrote.

Harris’ team stressed this was only one possible scenario, given the difficulty in predicting how different countries will act in the future. “We want to emphasize that this is a scenario and not a forecast,” the bank said. “However, the outlook is highly uncertain and investors need to consider the range of risks.”

The price of oil just keeps climbing

Harris’ warning comes as the price of Brent crude oil, a light crude oil that originates in oil fields in the North Sea between the Shetland Islands and Norway, moved to highs of $139.13 on March 7.

While prices have since fallen back to around the $120 per barrel mark, the sharp increase in energy prices has only exacerbated investors’ desire to reduce exposure to risk assets. As a result, the S&P 500 traded down nearly 3%, with the Nasdaq following suit, down over 3.5% into bear-market territory in the last 12 months.

The sudden rise in oil prices on March 7 was triggered in part by the idea of a Russian oil embargo that has been catching on in Washington. Although the initial U.S. and European sanctions were careful to leave Russian oil untouched, the tide could be turning.

Over the weekend, U.S. Secretary of State Antony Blinken said on NBC’s "Meet the Press" that the Joe Biden administration and its allies have been discussing a potential Russian oil embargo in response to Putin’s invasion of Ukraine.

Some oil giants are still buying from Russia

Oil prices may also have also increased because of backlash against energy giants that have dared to continue purchases of Russian oil as the country becomes a pariah in the West.

Even without direct sanctions against Russian energy exports, suppliers are facing immense public pressure to avoid buying oil from the country.

Ukraine’s Minister of Foreign Affairs Dmytro Kuleba admonished Shell after its Russian oil purchase last week, saying, “doesn’t Russian oil smell like blood to you?” in a heated Twitter post on March 4.

Another bank, JP Morgan, also cautioned investors about the impact of rising oil prices on U.S. and European economic growth over the weekend.

“The consequences of a complete shut-off of Russia’s 4.3 (million barrels per day) of oil exports to the U.S. and Europe would be dramatic,″ the bank wrote in a note to clients, per CNBC.

Oil prices have remained above $100 per barrel for the first time since 2014 amid Russia’s full-scale invasion of Ukraine in late February. Before the invasion, Russian exports represented roughly 7% of the total global oil supply. The loss of those exports has had serious effects on the market.

While U.S. gross domestic product grew at an impressive 7% in the fourth quarter of 2021, expectations for 2022 have seen repeated downward revisions of late.

In February, 36 forecasters surveyed by the Federal Reserve Bank of Philadelphia predicted real GDP will grow at an annual rate of 1.8% in the first quarter of 2022. That’s down 2.1 percentage points from the 3.9% predicted in the previous Fed survey. The more pessimistic outlook from forecasters comes despite the U.S. economy adding 678,000 jobs in February and a historically low unemployment rate of 3.8%.

On March 7 afternoon, an economic advisor to Ukraine's president urged the west to cut off Russian oil in an interview with CNBC, calling it "bloody money." The same day, Biden's presidential climate advisor, former Sen. and Secretary of State John Kerry, joined the CEOs of Exxon Mobil, Hess and TotalEnergies at S&P Global's CERAWeek energy conference. According to the Wall Street Journal, they said oil volatility isn't going away. Kerry said it's "something we're going to live with for a little while."