'You Should Be Alarmed,' Says Economist as Trump's Iran War Pushes US Gas Past $4 Per Gallon

Gas prices in the US have surged to a four-year high, and Nobel Prize-winning economist Paul Krugman is warning that the worst is likely yet to come.

Amid a Tuesday projection from AAA that average US gas prices had hit $4 per gallon for the first time since 2022, Krugman published an analysis of the petroleum market in which he projected that the price of oil will go even higher in the coming weeks as the global economy runs into supply shortages caused by President Donald Trump's war against Iran.

Krugman argued that oil price hikes have actually been tame so far because physical supplies have remained steady in recent weeks, as tankers that had already passed through the Strait of Hormuz before the start of the war have continued making scheduled deliveries.

That "grace period," as Krugman described it, is about to end as speculative market prices run into the hard realities of physical shortages.

What this fundamentally means, wrote Krugman, is "you should be alarmed."

"Once the crisis gets physical, there will no longer be room for jawboning the markets," Krugman wrote. "Since the war began there have been several occasions on which Donald Trump has been able to talk prices down by asserting that meaningful negotiations are underway... but that won’t work once the oil runs out. So prices will have to rise."

As for how far prices will go up, Krugman calculated that with only medium disruption to global oil production and medium demand elasticity, the price of oil would rise to $152 per barrel, which would push US gas prices well over $4.50 per gallon.

Making matters worse, Krugman found that it wouldn't take much additional disruption to push the price of oil into worse-case scenarios where it would top $200 per barrel.

"If oil really does go to $200 or more, it’s all too easy to envisage a full-blown global economic crisis, with an inflation surge and quite likely a recession," Krugman commented. "Ever since this war began I’ve noticed a sharp divide in sentiment among experts. Finance and macroeconomics experts have been relatively sanguine about our ability to ride out this storm. But talk to or read energy experts—people who focus on the physical side of the oil crisis—and their hair is on fire."

Petroleum industry analyst Patrick De Haan on Tuesday highlighted the major increases in the price of diesel fuel since the start of the Iran war, which could add even more pain to the US economy in the form of higher shipping costs for goods.

"Can't overstate the impact that's coming down the pipeline to truckers, farmers, logistics, and beyond," De Haan wrote in a social media post. "The US economy runs on diesel with several states setting new all-time highs for diesel, while others are seeing largest monthly increases of all time."

De Haan also posted a chart highlighting the states with the biggest diesel price increases since late February, and it showed swing states Arizona, Nevada, and North Carolina faced the largest surges, with prices up more than 57% in just one month in each state.