Renowned economist Paul Krugman on Tuesday picked apart the “potential really terrible” consequences of Donald Trump’s Iran war, which has sent oil prices soaring.
Traders currently assume “that this will not go on more than another week or two,” the winner of the 2008 Nobel Memorial Prize in Economic Sciences noted to MS NOW’s Chris Hayes.
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But if the war does drag on, “then this is 20% of the world’s oil flows through the Strait of Hormuz, and there’s really no other way for it to get to where it can be used,” he said.
“That’s enormous,” Krugman warned. “That’s a much bigger shock to world oil supplies than the oil shocks of the 1970s. This is just a gigantic disruption to world energy supplies. And the price can go easily, much, much higher than where it is now if it’s sustained. I mean, this is basically impossible and that’s nasty.”
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Krugman acknowledged that the U.S. economy is now “less oil dependent than it was in the 1970s” but added that “if you were going to concoct a recipe for somehow revisiting all of the bad things of the past 60 years of U.S. economic history, it would be what’s happening right now.”
Hayes noted the irony that Trump campaigned on lowering prices, yet his “two biggest actions” of macroeconomic impact have been “slapping a ton of tariffs on unilaterally and starting a war unilaterally.”
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“You kind of couldn’t come up with another way to unilaterally raise prices other than those two,” he suggested.
Krugman agreed, adding that presidents often get blamed for rising oil and gas prices but that in reality “they have no influence on it normally.”
“But start a war that threatens to cut off the world’s supply of oil. That’ll do it,” he pointed out. “And all indications are that they had they didn’t think about it. They just assumed that this would all be over and they install a puppet government and … wow.”
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