Iran War is "Straw That Breaks the Camel’s Back" for U.S. Economy

The US economy has been on unsteady footing for some time, but the catalyst that could push it over the edge may be unfolding on the other side of the world.

The primary economic risk from the conflict centers on energy, particularly oil and gas.

The conflict in Iran is not even a week old, yet observers are already seeing how the war could cascade into a broader economic downturn in the United States, Tristan Bove reported for Fortune.

If the war drags on and belligerents begin targeting energy infrastructure critical to global oil and gas trade, the US is likely to feel the economic strain, according to Nobel Prize-winning economist Paul Krugman.

With early hopes for a swift, decisive victory fading, the US has entered a delicate “war of whim” with no clear endgame and a rising daily price tag, Krugman wrote in a recent Substack post.

The shock might be manageable in isolation, he said, but combined with an already fragile economic outlook, America’s latest Middle East conflict could come at a significant cost.

“It isn’t occurring in isolation,” Krugman wrote.

“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.”

The primary economic risk from the conflict centers on energy, particularly oil and gas.

The Strait of Hormuz — a narrow waterway connecting the Persian Gulf to global trade routes — has been effectively closed since the war began, cutting off roughly 20% of the liquefied natural gas and petroleum products that typically pass through the strait.

That disruption has already pushed energy and fuel prices higher in the US, Krugman noted. Brent crude, a global benchmark, has jumped more than 10% since the conflict began.