The U.S. debt energy crisis is becoming harder for investors and policymakers to ignore as war-driven oil disruptions collide with already stretched public finances. According to Ruchir Sharma, chair of Rockefeller International, the current energy shock is unfolding at a moment when governments have less room than ever to absorb the cost.
In an op-ed published by the Financial Times, Sharma argued that the world is entering an unusually fragile period because this crisis is arriving on top of record debt levels. For the U.S., he said, the danger is especially acute. Even though the country is the world’s largest oil producer, it remains vulnerable to a prolonged conflict if rising energy prices worsen inflation, increase military spending, and push already large deficits even higher.
What makes this crisis different?
Sharma’s argument centers on one simple point: governments are facing an energy shock with far less financial flexibility than they had in previous decades. He noted that the oil shocks of the 1970s marked a major turning point for public finances. Before then, deficits were often temporary. Afterward, many advanced economies began running them more routinely.
That shift has transformed sovereign balance sheets. Average government debt across the G7 has climbed to more than 100% of GDP from roughly 20% decades ago, according to Sharma’s assessment. At the same time, total global debt rose last year at the fastest pace since the pandemic, reaching a record $348 trillion.
Those numbers matter because energy shocks rarely stay confined to oil markets. They spill into transport costs, food prices, industrial activity, consumer confidence, and monetary policy. Governments often respond with subsidies, emergency support, rationing measures, or price interventions. In a low-debt world, those policies are easier to finance. In today’s environment, they risk alarming bond markets already uneasy about rising borrowing needs.
Can bond investors still be counted on?
That question is increasingly central to the U.S. outlook. Sharma warned that markets may tolerate only limited new spending before demanding higher compensation for holding government debt. He pointed to recent weakness in Treasury auctions as a sign that investors are watching the fiscal picture more closely.
His concern is not just about headline debt, but about what comes next. President Donald Trump’s plans for sharply higher defense spending, combined with recent tax cuts, could push the federal deficit toward 7% of GDP this year, Sharma estimated. Interest payments on U.S. debt already exceed $1 trillion annually, which means a growing share of government resources is going toward servicing past borrowing rather than financing new priorities.
That dynamic matters well beyond Washington. When Treasury yields rise, borrowing costs tend to increase across the economy. Mortgage rates, corporate financing costs, and other long-term lending benchmarks often move in the same direction. For households and businesses, that can turn a geopolitical shock into a broader economic drag.
Biggest oil producer, but not insulated
The U.S. produces more oil than any other country, but Sharma’s warning is that production strength does not eliminate fiscal vulnerability. A prolonged conflict in the Middle East can still lift global prices, unsettle financial markets, and force a larger military response. With roughly one-fifth of the world’s oil and liquefied natural gas moving through the Persian Gulf, any disruption there has global consequences.
The timing is difficult for central banks as well. The Federal Reserve has still not returned inflation to its 2% target after years of elevated price pressures. That leaves policymakers with less freedom to cut interest rates aggressively if growth weakens under the weight of higher energy costs.
In Sharma’s framework, the most exposed countries are those carrying a toxic combination of high debt, large deficits, and central banks that remain short of their inflation goals. In the developed world, he singled out the U.S. and the U.K. Among emerging markets, Brazil, Egypt, and Indonesia were cited as particularly at risk.
How long can the pressure build?
The risk grows if the conflict lasts longer than expected. Trump has said he expected the Iran war to last four to six weeks, but it has now entered its sixth week with no clear sign of a rapid resolution. Military deployments are increasing, weapons inventories are being consumed, and the Pentagon is reportedly seeking additional congressional funding for the war effort.
That raises the prospect of another round of deficit expansion at a time when investors are already scrutinizing the Treasury market. Joseph Brusuelas, chief economist at RSM, made the point bluntly in a recent note, warning that any need for additional war financing could pressure U.S. debt further and trigger a selloff in bonds.
For investors, Sharma’s warning is less about immediate panic than about structural weakness. The U.S. may still have greater economic depth than most countries, but it is entering a volatile energy and geopolitical period with limited fiscal breathing room. That combination, he suggests, makes the U.S. debt energy crisis one of the defining risks of the current moment.
