Nobel Prize-winning expert issues grim prediction for Iran war's impact on US economy
A Nobel Prize-winning economist has warned that the war with Iran will spike the price of a US commodity in the next few days.
It all depends on whether the Strait of Hormuz remains closed, with many financial analysts hoping to see the passage for the Persian Gulf to open in the next few days. If it does not, Paul Krugman believes there will be a skyrocket in the price of oil in the US. This comes after Donald Trump's order to strike Iran, with a bombing campaign on the Middle Eastern country set to affect prices at home.
Krugman, writing in his Substack, warned there may be too much optimism placed in the price stabilizing over the next few days. "Indeed, it’s hard to understand why oil prices haven’t risen even more," he wrote. 'Why has oil not hit $100 a barrel?' asks the Financial Times."
"The best answer seems to be that even now traders are betting that the Strait of Hormuz won’t stay closed for more than a few days. I hope I’m wrong, but I expect the strait to remain closed for weeks despite Trump’s assurances."
There is some good to be taken from the oil prices though, and that is it will not be likely to cause a complete economic crisis - not yet.
Krugman predicted, "Even if oil prices go much higher, to $100 a barrel and beyond, it won’t necessarily trigger an economic crisis. I explained why on Monday: The United States and other advanced nations are far less oil-dependent than they were in the 1970s, when oil shocks did cause major economic disruption."
He then added, "Now we’ve added a fresh level of massive uncertainty. Bear in mind that this isn’t even a war of choice; it’s a war of whim, marked by a near-total lack of planning... One shouldn’t exaggerate the economic fallout from this war. But it isn’t occurring in isolation: There are many stresses on our economy, and this could be the straw that breaks the camel’s back — a straw that becomes heavier the longer the war goes on. Furthermore, if Trump is this erratic now, what will he do as the midterms get even closer?"
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