Johns Hopkins economist Steve Hanke has warned that the United States is headed for a financial crisis unless the Strait of Hormuz is reopened and oil prices fall back due to the war.
Hanke also said that President Donald Trump is rushing to withdraw from Iran mainly because he is afraid of repeating the legacy of Herbert Hoover as president is remembered. The Great Depressionhe said in interview by David Lin published on July 1.
Hanke’s warning refers to one scenario in which the war continues, the road remains closed, and the rate of futility rises even higher than previously predicted.
As a result, he said, the Federal Reserve will be forced to cut rates aggressively to end the shock, moving quickly rather than planned.
“Trump means that if the war continues, if the Strait is still closed, if the oil prices go to the moon, we will have a big problem. He used the word economic disaster. In that situation, obviously it changes everything. So that would change what I think the Fed would probably do – goose things we under those circumstances. And we will get a recession,” said Hanke.
In particular, the Strait of Hormuz carries about one-fifth of the world’s oil, and its effective closure since the war began at the end of February has already fallen to $ 110 a barrel and US oil prices have passed $ 4.10 a gallon, the highest level since 2022.
Iran’s military power
Hanke’s reading is that Iran, not the United States, currently has control over the chokepoint, and that Tehran’s control over the route is the stark difference between the current economy and the “catastrophe” that Trump has publicly called for.
Hanke has said that Iran’s position has strengthened since the war began, citing rising oil exports and a strong rial as signs that Tehran can overtake Washington on the economy.
They believe that Trump’s use of the word “disaster” reflects anxiety about being blamed for the economic collapse, as Herbert Hoover associated with the Great Depression.
According to the expert, this fear is pushing Trump to present the end of the war as a victory regardless of his feelings, while a separate memorandum leaves Iran with a great advantage over the Strait of Hormuz, including the ability to impose sanctions.
He said that the most likely solution is to implement the agreement mainly as it was written, with Iran maintaining control and control of the access to the Strait of Hormuz.
They hope that Trump will agree to this, including the tariffs, rather than risk a prolonged recession that could send oil prices so high that the US economy collapses.
Hanke also warned that the failure of the US government will make it unable to withstand a long-term oil shock.
