The Iran conflict will be the ’straw that breaks the camel’s back’ for the U.S. economy if it goes on much longer, Nobel laureate Paul Krugman warns

The U.S. economy has been unstable for some time, but the catalyst that pushes it to the brink of collapse may be events happening on the other side of the world.

The conflict in Iran is less than a week old, but observers are already seeing the potential for the war to trigger a ripple effect and lead to a broader economic downturn stateside. Nobel laureate Paul Krugman said the United States could feel economic pressure if the war lasts longer and the belligerents start targeting energy infrastructure critical to global oil and gas trade.

With initial hopes of a quick, decisive victory in Iran quickly fading, the United States has entered a delicate “war of the moment” with no clear end and rising daily costs, Krugman wrote in a Substack post on Wednesday. He added that this was a potential shock that the United States might be able to handle on its own, but coupled with an increasingly fragile and uncertain domestic outlook, the United States’ latest foray into the Middle East could end up being costly.

“This did not happen in isolation,” Krugman wrote. “There’s a lot of pressure on our economy and this could be the straw that breaks the camel’s back – the longer the war goes on, the heavier that straw will be.”

The main economic risks arising from conflict are related to energy, particularly oil and gas. The Strait of Hormuz – a narrow waterway that connects the Persian Gulf to global trade routes – has been effectively closed since the war began, cutting off about 20% of the liquefied natural gas and petroleum products normally shipped through the strait.

Krugman noted that this has led to higher energy and fuel prices in the United States. Brent crude, the global oil price benchmark, has risen more than 10% since the conflict began. The average price of a gallon of gasoline in the United States also increased by about $0.20. The longer the conflict lasts and the longer global oil and gas supplies are constrained, the greater the pressure on prices will be. Another risk, Krugman noted, is that the infrastructure used to produce and refine natural gas and petroleum products would be damaged in an attack. Some critical facilities have been targeted by missile attacks, including a reported Iranian attack on a Bahrain oil refinery on Thursday.

New York Rep. Joe Morelle told CNN on Thursday that the war could cost about $1 billion a day. He told CNN on Thursday that the Pentagon has so far been “slow to respond” to the cost of the conflict. This week, administration officials are also reportedly preparing to request $50 billion from Congress to fund their campaigns in the Middle East.

All told, the Iran conflict could ultimately cost U.S. taxpayers as much as $210 billion, said Kent Smetters, director of budget modeling at Penn’s Wharton School. wealth This week. The forecast includes any eventual disruption to trade and energy supplies, as well as the financial consequences of a protracted war.

While a protracted war will certainly have an economic impact, taken individually it may not be as painful as previous violent conflicts in the Middle East. Some commentators liken the potential impact of the current conflict to the oil embargoes imposed by oil-producing countries (mainly in North Africa and the Middle East) in the 1970s, which plunged the United States and other countries into years of low growth and high inflation. But as Krugman and others have pointed out, the world is much less dependent on oil than it once was. Krugman writes that supply disruptions in the Middle East will lead to inflation, but not to the paralyzing levels of 50 years ago.

The real risk for the United States, he continued, is that any pressure from a war with Iran would have to be dealt with along with multiple other economic deteriorating factors. Krugman noted how tariffs — which Trump recently reinstated after a Supreme Court ruling was struck down by the majority — continue to stifle growth prospects and create uncertainty in the business world.

Another worrisome scenario, Krugman said, is a long war coupled with the expected economic hit from the Trump administration’s immigration policies, which the Congressional Budget Office recently predicted will cause more than 2 million people to drop out of the labor market over the next decade.

More imminently, Krugman wrote, the costs of war could collide with concerns that AI will eliminate jobs, or ultimately lead to a reversal of market fortunes, leading to lower asset prices and business confidence.

“The key point is that the recent economic shocks did not occur in isolation,” he wrote. “Now, we’ve added a huge new level of uncertainty.”

This story originally appeared on Fortune.com