Trump’s ‘Economic D-Day’ Has A China Problem – And Paul Krugman Says It Could Keep Iran Sanctions From Working

• Krugman said reopening Hormuz may not lower fuel prices due to limited refining capacity.
• He added a wider “crack spread” could keep energy costs high even if crude prices fall.
• The economist sees China as the key obstacle, since Beijing can keep supplying Iran with essential goods and funding even if the U.S. moves ahead with sanctions.

Economist and Nobel laureate Paul Krugman said on Tuesday that the Trump administration's plan to pressure Iran economically is just a “Trump Fantasy” disconnected from the constraints facing the U.S. 

In a Substack post, Krugman stated that the “D” Treasury Secretary Scott Bessent’s "economic D-Day" stands for “dud.” He stated that the administration’s economic strategy faces two major problems. 

First is that the disruption to energy markets is no longer simply a matter of crude oil supplies, and, secondly, China has the ability and incentive to help Iran withstand U.S. pressure. “What you need to know is that this economic campaign will fail as thoroughly as the military campaign,” he wrote.

“It’s just another Trump fantasy to believe that he can intimidate a regime that has already survived decapitation of most of its leadership, endured months of intense bombing, and that has successfully retaliated against U.S. allies in the Gulf.”

– Paul Krugman, Nobel Laureate, Professor of Economics at CUNY

Krugman acknowledged that the U.S. can impose “substantial economic hardship on Iran,” but said that is different from forcing the Iranian government to capitulate. He forecast that the economic campaign could expose rather than strengthen U.S. leverage.

Krugman Says Oil Disruption Runs Deeper Than Crude

According to Krugman, reopening the Strait of Hormuz would not necessarily restore energy prices to pre-war levels. The Strait is a critical route for global oil shipments, and the U.S. has been working to restore the flow of crude through the waterway. 

Krugman acknowledged that effort could allow more oil to reach global markets, calling that part of the strategy “not entirely stupid.” However, he said that the bigger problem is the shortage of refining capacity.

Gasoline and diesel prices depend on the cost of refined products, not crude oil alone. Krugman pointed to the widening “crack spread,” the difference between crude oil prices and the prices of refined fuels, which he attributed to a global shortage of refining capacity.

China Could Undercut Bessent’s Economic Pressure

The U.S. can restrict Iranian oil exports and impose sanctions on companies and countries that do business with Tehran. However, Krugman stated that completely cutting off Iran's imports would be far more difficult, particularly because China can supply Iran with essential goods and financial support.

Iran earned about $45 billion from oil exports in 2025, according to figures cited by Krugman. That represented roughly 7% of Iran's GDP but only about 0.2% of China's economy.

That difference gives Beijing considerable room to support Tehran without taking on a comparable economic burden, Krugman said.

China Warns US Over Iran Sanctions

China on Tuesday already warned that it would retaliate if Chinese companies are included in any significant expansion of the Trump administration’s new secondary sanctions relating to Iran.

“China has made clear on many occasions its firm opposition to illicit unilateral sanctions that have no basis in international law or the authorization of the UN Security Council,” said Foreign Ministry Spokesperson Lin Jian’s in a press conference. “China’s cooperation with Iran is conducted within the framework of international law, thus should not be disrupted.”

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