Photo: bigbabypooch via YouTube
GasBuddy.com blogger Patrick DeHaan has some unfortunate news about what would happen to oil prices if Greece exits the Eurozone.While there would likely be a short-term drop in prices in a controlled departure, the value of the Euro would eventually come roaring back, driving prices higher, he writes.
Here’s how it would work:
“You see, the situation in Greece has devalued the euro significantly, driving the dollar higher because of the situation. Since oil is globally traded in dollars, when the dollar outperforms the euro, oil prices tend to fall, and thus gasoline prices drop. When the opposite occurs, oil prices rise, and thus gasoline prices face upward pressure as well.
“While the weakness of Greece is hurting other countries, it’s also leading to lower oil prices…”
Since May 2008, the dollar has risen 22 per cent against the Euro.
DeHaan does not lay out how long the immediate post-exit devaluation would last; historically, currencies are kept low for at least two years after an exit.
But Europe’s unique combination of core growth and commitment to hawkishness could truncate that time considerably.