Oil Shocks Will Take A Much Higher Toll On Europe Than The US

oil rig

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Rising prices of crude oil have economists in the U.S. worried, but the real impact of expensive oil won’t be felt on American shores.Bank of America Merrill Lynch analyst Neil Dutta argues that Europe is going to feel the most severe pain from oil shocks in an investor note out last week.

Dutta says that Europe’s difficulties stem from peripheral countries’ dependence upon oil from Iran, as well as the Middle East more generally. For instance, Greece currently gets one third of its oil imports from Iran—and the EU has promised an embargo on Iranian oil to take effect in July.

“The complicating factor is that [Greece and other peripheral countries are] the focus of the sovereign debt crisis,” Dutta told Business Insider in a phone interview.

But that’s just one side of the problem. “Second, Europe’s more exposed to the Middle East because they’re closer to it. It’s a matter of geography,” he explained.

Europe will have a much harder time escaping a shock from its regional neighbours, whereas the U.S.’s own oil reserves and distance mitigate the strength of ties to the Middle East.

Even so, Dutta added that high oil prices are “an unambiguous negative for every country that’s consuming oil.”

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