The signal from the White House was clear. Joe Biden is “very open” to the idea of adding oil and gas to the sanctions list as a way of escalating the west’s economic war against Vladimir Putin. Surging oil prices suggest traders think the die has already been cast: whether because governments take action directly or whether through self-sanctioning from western companies, oil and gas supplies from Russia are going to dry up. That will have serious consequences for Russia, but it will also add to cost of living pressures in the west. Even before this week’s rise in crude oil prices to more than $110 (£82) a barrel – the highest since 2014 – analysts were cutting growth forecasts and raising estimates for inflation. Including energy in the list of items targeted would mean oil and gas would be dearer for longer, increasing the risk of a slowdown turning into recession. The world economy is less dependent on oil than it was at the time of the first postwar spike in 1973-4, and uses the fossil fuel more efficiently. Back then it took a little less than a barrel of oil to produce $1,000 of output. By 2019 global oil intensity was 0.43 of a barrel per $1,000 of output. Even so, what happens to the oil price still matters and Russia – which is the second biggest exporter after Saudi Arabia – is a key player in the global market. So far, most economists think Russia’s invasion of Ukraine will merely dent the recovery they have pencilled in for this year. But as the Warwick University academic Prof Andrew Oswald has noted, almost every postwar recession has been preceded by a rise in oil prices. The cost of crude rose sharply in 1973, in 1979, in 1990 and in 2007. All were followed by recessions, though sometimes dearer energy was not the only factor. Three factors will determine the hit to western economies over the coming months. The first is whether energy continues to flow, something that is looking less likely by the day. Bjarne Schieldrop, chief commodities analyst at SEB bank, estimates that 70% of the 4.3m barrels of crude Russia would normally be exporting daily is already frozen. Neil Wilson, chief market analyst at Markets.com, said the latest jump in oil prices reflected a sense that formal sanctions on Russia’s energy sector were inevitable. Rising oil prices were a windfall for the Kremlin, he added. “This is one of the reasons why western governments might play this card – the cognitive dissonance of squeezing Russia on all fronts with sanctions while still funding their war machine by buying oil and gas may not survive for long.” The second factor involves the size and the duration of higher oil prices. Most analysts assume crude will rise a little further – perhaps to $125 a barrel – and then start falling in the second half of the year. Paul Dales, chief UK economist at Capital Economics, said if oil and gas followed current futures pricing, UK inflation would peak at just below 8% in April and still be above 5% by the end of the year. Under an alternative scenario the oil price rises to $130 a barrel and stays above $100 until early 2023, while European wholesale gas prices rise to €160 (£133) a megawatt hour and end this year around €100 a MWh. In that event, Dales said inflation would peak above 8% and still be nudging 6% by the end of the year. Some fear the oil price could hit $150 a barrel, intensifying the squeeze on consumers. Businesses would also be hit, with more expensive energy and lower demand hitting profits. Finally, there is the question of how central banks will respond. Jerome Powell, the chair of the Federal Reserve, said events in Ukraine would not derail plans by the US central bank to start raising interest rates. The Bank of England, which has already increased borrowing costs twice in recent months, is also likely to tighten policy. What is not yet clear is how far and how fast interest rates will rise. One risk is that central banks do too little. An even bigger risk is that they do too much.