Nobel Prize-winning economist Paul Krugman is warning of a catastrophic global oil shock, cautioning that impending physical shortages could drive prices as high as $372 per barrel and trigger a worldwide recession.
The End Of Grace Period
Despite current Brent crude futures hovering around $103 per barrel, Krugman warns that the market is severely underestimating a looming supply crunch.
In a Substack analysis, he noted that the initial price spike following Middle Eastern disruptions was largely speculative, buffered by oil already in transit at sea. However, with tanker deliveries to Asian markets ending this week and European deliveries halting the next, the situation is drastically shifting.
“The oil crisis is about to get physical,” Krugman wrote. Once the oil stops flowing, political “jawboning” will fail, and prices will be forced to rise to whatever level destroys enough demand to match restricted supply.
The $372 Worst-Case Scenario
Based on the historically low price elasticity of crude demand, Krugman modeled several potential price impacts.
In his “high disruption” scenario—where global supply falls by 16% …
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