In a shocking analysis, the Nobel laureate economist Paul Krugman makes an "X-ray" of an impending economic collapse, while moving away from the usual statistical analyses and focusing on the harsh reality of the physical shortage of resources.
Paul Krugman argues that the global community is in a state of dangerous delusion.
While the International Monetary Fund issues warnings of slowdown, he believes that institutional analysts fail to grasp the magnitude of the disaster caused by the blockade of the Strait of Hormuz.
According to Krugman, the interruption of the flow of 20% of global oil is not a simple price problem, but a problem of survival of the industrial model as we know it.
The fallacy of econometric models and physical scarcity
The main error of most forecasts lies in the way they approach the crisis.
Most analysts start by calculating the rise in the price of the barrel and then try to model the effects on consumption.
Krugman reverses this logic, emphasizing that the primary issue is the physical shortage of supply.
When oil stops flowing, the world has no choice but to reduce consumption instantly.
This violent adjustment never occurs smoothly, but always through painful economic recessions that flatten production.
The unfeasible solutions and the inevitable recession
In his analysis, Krugman examines the available exits for reducing dependence on oil under crisis conditions and reaches disappointing conclusions.
The replacement of oil by other energy sources is practically impossible within the short time frame of a few months that the blockade lasts.
At the same time, the change of consumer habits, such as a massive shift to transport means, runs into the structural deficiencies of infrastructure in most countries of the world.
Therefore, the only effective way to balance the shortage of supply is the overall contraction of economic activity.
This means less production in factories and less consumption in households, something that historically translates into a deep global recession.
The nightmare of 1973 and the comparison with today
The Nobel laureate economist uses as a reference point the crisis that followed the Yom Kippur War in 1973 to show what awaits us.
Then, global oil consumption fell by 17.5% compared to previous trends, causing a deviation of global growth by 7.5% from initial forecasts.
Based on today’s data, if the blockade of the Hormuz continues for another three months, global growth will be reduced to zero or will turn negative for the next two years.
This scenario constitutes a global disaster, as modern economies are far more interdependent and vulnerable to supply chain disruptions than they were in the 1970s.
(Oil price chart)
The end of optimism and the coming price shock
Despite some faint hopes for a diplomatic resolution or the small reduction of the relative dependence of the global economy on oil, Krugman remains extremely pessimistic.
He concludes that those analysts who speak of controlled effects are simply turning a blind eye.
Oil prices will be forced to reach levels that will cause irreparable damage to the global fabric, leading to a prolonged period of stagnation.
The warning is clear: if the blockade is not lifted immediately, the world is entering a dark economic era where growth will be a thing of the past and the management of scarcity will be the new normal.
The reality of the global economy as presented by other analysts also vindicates the Nobel laureate economist.
Global economy 2026: The “perfect storm” is here - The end of illusions and the destruction of infrastructure
On the 3rd day of May, the global economy is not simply slowing down, but facing a structural collapse that traditional "tools" such as money printing are unable to cure.
The crisis in the Middle East has exceeded every previous scenario, turning energy scarcity into a permanent threat.
While last month there was hope that the conflict would be short, reality has disproved us.
The escalation that began with the strike on the Iranian field South Pars and the response with attacks on the Qatar LNG infrastructure, which covers 20% of global production, changed the data. Even if the Strait of Hormuz fully reopens tomorrow, the destroyed infrastructure means that energy prices will remain at prohibitive levels for at least one more year.
Stagflation: The double blow
We are now experiencing a classic stagflationary environment.
Inflation is not driven only by oil, but by the physical disappearance of critical goods from the market:
1) The shortage of mineral fertilizers from the Gulf leads to reduced harvests and a surge in food prices, hitting mainly vulnerable groups.
2) The shortage of industrial helium and aluminum paralyzes chip manufacturing and the automotive industry.
3) With Dubai having been put out of operation as a trade hub, supply chains between Europe and Asia have been disrupted, increasing import costs everywhere.
Europe in contraction and the “Schrödinger truce”
The data are revealing: the Eurozone PMI index fell to contraction levels in recent days, with services recording the biggest drop since the time of the pandemic.
The so-called "Schrödinger truce", where negotiations theoretically exist but in practice tankers are attacked, keeps the market hostage.
Interesting is the divergence in public debt: Southern Europe (Greece, Cyprus, Portugal) shows a historic deleveraging and primary surpluses, while Northern Europe, and mainly Germany, is forced to widen its deficits to support its economy.
The US recession, the ECB puzzle and the storm in Greece
For the USA, Polymarket forecasts now give a 34% probability of a hard recession by the end of the year, as fuel shortages begin to pressure domestic consumption.
All eyes are turning to the European Central Bank.
The puzzle is relentless: How to tackle inflation that is galloping due to supply shortages, without leading the already weakened economy into total collapse? The rhetoric about possible interest rate increases in the summer, despite low growth, is causing tremors in the markets.
The global economy is entering a phase where money can no longer buy time.
Real shortages in energy and raw materials make the exit from the crisis long and painful.
The week that begins will be decisive, as the first estimates will reveal the real depth of the wound.
If Krugman is confirmed, Greece, which is trying to maintain growth rates above the European average, will face a "perfect storm".
The combination of zero growth and high inflation will cancel the entire government program, as public revenues will collapse.
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