While investors fixate on the Middle East, Professor Steve Hanke says the more dangerous story may be playing out at home. The Johns Hopkins economist argues that the war around Iran and the Strait of Hormuz is not just a geopolitical shock. It is a stress test for a US balance sheet he believes is already broken.
Hanke called the conflict a “massive supply-side shock to the world economy,” noting that it lies at the opposite end of the spectrum from the 2020 pandemic shock.
“You’ll probably get at least a 10% contraction in the supply of oil in the international market,” he said in a recent interview with Metals and Miners. Oil, he said, is “the major input to the world,” meaning higher costs will ripple through refined products, chemicals, plastics, and fertilizer.
The Insolvent Household
That scenario would be damaging even if Washington were entering the crisis from a position of strength. Hanke’s point is that it is not.
The Treasury Department’s latest consolidated financial statements show the US government ended fiscal 2025 with $6.06 trillion in assets and $47.78 …
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