A growing problem caused by the strikes on Iran should have been noted before military action was taken, a Nobel Prize winner has claimed.
Paul Krugman suggested the impact of Donald Trump's bombing in the country should have factored into the decision-making, but it does not appear to have had much effect on the choices made by the administration. The economist believes that, had cooler heads prevailed, then the government would have at least prepared for the aftershock of an economic crisis which shows no signs of stopping.
Writing in his Substack, Krugman suggested the Trump admin should have been aware that oil prices would surge following the first strike. He wrote, "The people who decided to begin this war should have seen this coming. All the evidence, however, suggests that they didn’t."
Krugman pointed to Trump's economic gamble as a reason for the worsening oil prices. He added, "Although we import some oil, mainly from Canada and Mexico, while exporting even more oil, mainly from Texas, we buy hardly any oil from the Persian Gulf.
"Yet the closure of the Strait of Hormuz has caused U.S. prices of oil products to soar. Self-sufficiency in oil has done nothing at all to insulate the U.S. economy from Middle East chaos.
"Now, we should have expected that. Oil is traded on world markets, so the price is more or less the same everywhere. The two most widely watched barometers of oil prices are the West Texas Intermediate price in the United States and Brent crude in Europe.
"America exports more oil than it imports, while Europe is a massive net importer. Yet the two prices have moved in tandem over the years."
While some may be surprised by the price hike, the economist believes there is no insulation that would have prevented the US from being affected by the Strait of Hormuz closure, or the strikes on Iran.
"Some people have been shocked at the way U.S. gasoline, diesel and heating oil prices have soared over the past few days," Krugman wrote, "But they shouldn’t have been surprised.
"In the 1970s the U.S. imposed price controls on domestically produced oil and partially insulated consumers from global oil shocks. Over time, however, these price controls led to shortages — the infamous gasoline lines.
"When price controls were lifted, they were replaced by a windfall profits tax intended to capture part of the gains experienced by oil companies. This tax was repealed after prices plunged in the mid-1980s.
"Whatever you think of these past policies, however, they took place in a political environment in which corporations and moneyed interests in general had far less power than they do now.
"It’s almost inconceivable that 1970s-type price controls or excess profits taxes would be imposed today. So US prices of gasoline and other oil products reflect world crude prices, and the fact that America produces a lot of oil doesn’t matter at all."
