Strait of Hormuz conflict makes US economy ‘fragile’: Paul Krugman

00:00 Speaker A

20 percent of the world’s oil passes through the Strait of Hormuz.

00:02 Speaker A

There’s no use being stuck in the Persian Gulf.

00:05 Speaker A

So 20% of the world’s supply needs to pass through this directly to reach world markets,

00:10 Speaker A

It is completely closed for now.

00:13 Speaker A

So this is a huge shock to the oil market.

00:16 Speaker A

Maybe not so much for the other part of the story, which is the world economy.

00:20 Speaker A

Unfortunately for the United States, it doesn’t matter that we don’t import significant amounts of oil from the Persian Gulf.

00:26 Speaker A

This is a global market, the price of oil is the price of oil.

00:29 Speaker A

US oil companies benefit from higher prices, but that doesn’t do you or me any good.

00:32 Speaker A

One thing we should add here is that if we’re really asking who’s getting hurt,

00:36 Speaker A

In fact, whether we produce a lot of oil or they don’t, U.S. consumers suffer more than European or Asian consumers.

00:41 Speaker A

The reason for this is that we only drive big cars. We use less fuel efficient vehicles.

00:47 Speaker A

We, the United States, are much less oil intensive than we were in the 70s, but we are much more oil intensive than Europe and Asia.

00:51 Speaker B

And I think we’re driving more in terms of distance, too.

00:54 Speaker A

people are paying more at the pump, people are paying more on their heating bills, oil companies’ profits are increasing, it’s probably not going to increase demand very much. So there is a direct hit to demand.

01:00 Speaker A

And then you get this hit. Although inflationary effects will likely diminish,

01:05 Speaker A

This could still mean the Fed won’t cut rates.

01:08 Speaker A

Therefore, the impact of capital markets on returns is not positive.

01:13 Speaker A

The US economy looks fragile.