Oil Could Spike To $372 Per Barrel In Worst Case Scenario, Says Paul Krugman: 'Crisis Is About To Get Physical'

Nobel Prize-winning economist Paul Krugman is warning of a catastrophic global oil shock, cautioning that impending physical shortages could drive prices as high as $372 per barrel and trigger a worldwide recession. The End Of Grace Period Despite current Brent crude futures hovering around $103 per barrel, Krugman warns that the market is severely underestimating a looming supply crunch. In a Substack analysis, he noted that the initial price spike following Middle Eastern disruptions was largely speculative, buffered by oil already in transit at sea. However, with tanker deliveries to Asian markets ending this week and European deliveries halting the next, the situation is drastically shifting. “The oil crisis is about to get physical,” Krugman wrote. Once the oil stops flowing, political “jawboning” will fail, and prices will be forced to rise to whatever level destroys enough demand to match restricted supply. The $372 Worst-Case Scenario Based on the historically low price elasticity of crude demand, Krugman modeled several potential price impacts. In his “high disruption” scenario—where global supply falls by 16% due to escalated conflicts, such as attacks on Iranian export facilities or Red Sea shipping—coupled with low demand elasticity, oil prices could hit a staggering $372 per barrel. Harvard economist Jason Furman highlighted a massive disconnect regarding these projections. Furman noted on X that the market currently assigns a near-zero probability to Krugman’s highest estimates, despite the models being rooted in fundamental economics. On his terrific Substack @paulkrugman has an analysis of oil price scenarios.The analysis is basic economics.But the market thinks ~50% of the probability mass is below the lowest value in this table, ~20% is above the middle and ~0% is above the top.Why the disconnect? pic.twitter.com/QbbwNkOYYD— Jason Furman (@jasonfurman) March 31, 2026 Looming Recession Risks Krugman stressed that assuming a moderate outcome is “not at all a safe assumption” given the current trajectory of the war. He explicitly warned that if oil breaches the $200 mark, the world faces a “full-blown global economic crisis, with an inflation surge and quite likely a recession.” While broader macroeconomic experts remain somewhat sanguine, energy analysts tracking the physical supply are increasingly panicked. “My hair is definitely starting to smolder,” Krugman concluded. Brent And WTI Crude Futures Surge Over A Month The fund tracking Brent Crude futures, United States Brent Oil Fund, LP (NYSE:BNO), has advanced by 49.41% over the last month, while United States Oil Fund, LP (NYSE:USO) gained 55.28% in the same period. BNO was up 82.36% year-to-date, and USO rose by 82.46% in the same period. These funds are poised to witness significant moves if Krugman’s analysis holds in the multiple cases outlined in his post. Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. Photo courtesy: Funtap on Shutterstock.com