The economist said that projections of oil rising to $150 per barrel are low if the Middle East war drags on.
- Krugman also said that although oil prices have surged since the conflict escalated, current levels are well below what would trigger a global economic crisis.
- However, if the disruption continues for months, the loss of Gulf oil could surpass the supply shocks seen in 1973, 1979 and in 2022, he added.
- Goldman Sachs expects Brent crude to average above $100 per barrel in March and around $85 in April.
The short-term economic fallout from a major disruption in Gulf oil supply could be “very ugly,” economist Paul Krugman warned, as tensions in the Middle East threaten one of the world’s most crucial energy supply routes. He added that crude prices could surge well beyond $150 a barrel if the Iran conflict becomes a “long war.”
In a Substack post on Friday, Krugman said the global economy’s resilience to oil shocks could paradoxically push crude prices much higher, as current levels may not yet be painful enough to significantly curb demand.
Why The Economy May Handle Oil Shocks Better Today
Krugman argues that although oil prices have surged since the Middle East conflict escalated, they are still well below levels that would trigger a global economic crisis. He noted that modern economies are far less dependent on oil than they were during the 1970s energy crisis, meaning prices around $100 per barrel may not be enough to significantly reduce consumption.
Strait Of Hormuz Is The Key Risk
However, the supply outlook is more troubling, he added. About 20% of the world’s oil supply moves through the Strait of Hormuz, a vital chokepoint that has effectively been closed since the U.S.–Israel–Iran conflict began on February 28.
If the disruption continues for months, the resulting loss of Gulf oil could surpass the supply shocks seen during the 1973 oil embargo, the 1979 Iranian revolution, and the 2022 Russia–Ukraine war. In that scenario, oil prices would have to rise high enough to curb demand, forcing drivers, airlines, and freight operators to significantly reduce fuel consumption. Such a shift would likely occur only if prices rose to levels that put serious pressure on the global economy.
Goldman Sachs Expects Brent To Average $100 Per Barrel
Wall Street is already bracing for increased prices. Goldman Sachs expects Brent crude to average above $100 per barrel in March and around $85 in April, though prices could climb further if supply disruptions persist. The brokerage also estimates that a two-month closure of the Strait of Hormuz could lift its fourth-quarter (Q4) Brent forecast from $71 to roughly $93 per barrel.
Brent crude futures for May 2026 deliveries were down around 1% at $99.6 per barrel, while the West Texas Intermediate (WTI) crude contracts expiring in May 2026 were down 1.4% at $93.1 a barrel at the time of writing.
The United States Oil Fund (USO) traded 2.6% lower in pre-market on Friday, while retail favorites Trio Petroleum (TPET) and Battalion Oil Corp. (BATL) fell 8% and 5.3%, respectively.
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