Chicago – March 06, 2026
The Iran war upended markets this week, and economist Paul Krugman thinks the effects could ultimately be much more far-reaching.
The Nobel Prize winner hasn’t been too optimistic about the US economy recently, largely due to the impacts he sees from President Donald Trump’s tariffs. Yet, as the military conflict escalates, he sees severe consequences looming for the US economy.
Krugman highlighted several pressing factors that have kept uncertainty high in a recent Substack post, but also laid out why the war may be accelerating the economy’s decline.
“There are many stresses on our economy, and this could be the straw that breaks the camel’s back — a straw that becomes heavier the longer the war goes on,” he said.
In Krugman’s view, the chances appear increasingly slim that the conflict will be resolved quickly. He thinks the high uncertainty that has pushed markets lower is likely to persist as the Trump administration hasn’t offered a clear plan or a timeline for how long they see the war going on.
The economist said the effects of higher oil prices and an expensive war on top of existing economic strain will make for a dangerous economic scenario. He flagged AI an one such risk already percolating through the system as markets fret over a new war in the Middle East.
