Experience Stern | Faculty & Research

The Persian Gulf is in an unstable disequilibrium. There has been no lasting deal to reopen the Strait of Hormuz, because the United States and Iran remain far apart in their demands, with the Iranians holding more leverage than President Donald Trump ahead of the US midterm elections this November. In the absence of a full deal, renewed skirmishing was highly likely, reflected in the growing risk of a return to full-blown warfare.

Still, equity markets did climb higher on the hope that a temporary ceasefire would lead to a full deal, and market reactions to the latest re-escalation of tensions have been subdued. The overall economic impact—in terms of growth and inflation—has been relatively modest. Despite this being the largest-ever disruption to global oil supplies, the oil shocks of the 1970s had a greater impact.

The Iranian strategy remains centered around the weaponization of oil, a practice that has a long history. Some historians argue that Germany lost World War I partly because an Allied sea blockade deprived it of oil. Similarly, Imperial Japan made the fateful decision to attack the American fleet at Pearl Harbor because US President Franklin Roosevelt’s administration had imposed an oil embargo on it for invading China, and Stalin would later claim that the Nazis lost World War II because the Soviets had prevented the Axis powers from seizing oil fields in the Caucasus.

Read the full Project Syndicate article.
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Nouriel Roubini is a Professor Emeritus of Economics and International Business and the Robert Stansky Research Faculty Fellow.