New York University professor Nouriel Roubini has warned that the global financial markets are underestimating the risks of the Israeli conflict with Hamas expanding into a “massive conflict” which will spread throughout the Middle East.

Speaking to Bloomberg on Thursday, the professor said that the prevailing view among investors was that Israel “has no choice but go into Gaza and get rid of Hamas,” and that they are pricing in the scenario where “Israel occupies Gaza, it’s going to get ugly, but the conflict remains contained.”

Roubini, who earned the moniker “Doctor Doom” from Wall Street, after predicting the financial crisis of 2008-2009, emphasized there is a “downside scenario,” where Iran and Lebanon could become involved, which would set off a conflict between Iran and Israel.

He went on to add that if “Israel tries to destroy Hamas, Iran that is a major backer of Hamas decides to unleash Hezbollah in Lebanon, and then you have the second front in Lebanon, maybe a third one in the West Bank. And at that point Israel will have to attack Iran.”

In that scenario, he noted there would be a disruption in the supply of oil from the Gulf region, and “you get a spike in oil prices and the economic impact would be huge,” adding, “it’s not the baseline scenario, but it’s a risk.”

However he warned that in such a scenario, the increase in oil prices would shock the markets, setting off a “stagflationary shock” which would create a “huge dilemma for central banks.”

As the Israeli conflict with Hamas has taken shape this week, global oil prices jumped by about 4% over fears of the conflict spreading and destabilizing the Middle East. On Thursday, international benchmark Brent Crude sat at about $86 per barrel, as West Texas Intermediate crude traded at about $83 per barrel.