The biggest inflation risk from rising oil prices is not in Europe or the United States but in Asia, according to Mabrouk Chetouane, head of global market strategy at Natixis IM.
Trade flow data shows that only 3% to 4% of oil exports transiting the Strait of Hormuz go to Europe and the US, compared with far larger shares heading to China, Japan, South Korea and India.
“Around 35% goes to China and about 25% to India,” Chetouane said. “This means the risk of a significant inflation increase is not in the US or Europe, but in Asian countries. That creates a new environment for those economies as they face inflation risks that are unusual for them.”
This contrasts with the post-2022 inflation surge, when Western economies bore the brunt of energy-driven price pressures. François Collet, chief investment officer of Europe at DNCA, argued that the current situation resembles the oil shocks of the late 1970s more than the 2022 energy crisis.
In 2022, Europe faced an availability problem – gas simply was not there, particularly for Germany. “The issue was availability, not just price. Energy was not available, which makes all the difference,” he said.
Today, energy is available but more expensive, similar to the 1970s when OPEC raised prices but oil remained accessible.
Inflation was broadly under control before the current oil crisis, Collet said, although he noted that it was “maybe less so in the US”.
Monetary policy is also in a different place. Europe had negative interest rates in 2022 and the US had zero rates, meaning short-term real rates were deeply negative. Today, real rates are neutral or positive. However, the US presents a more complex picture.
Chetouane expects US inflation to reach around 4% by the end of 2026, driven in part by distortions in the consumer price index and a divergence between GDP growth and labour-market conditions.
“When that happens, GDP usually converges to the labour market,” he said. “The labour market is decelerating and we may see slower growth and higher inflation.”
That raises the spectre of stagflation – the combination of weak growth and high inflation. Chetouane believes the risk is higher in the US than in Europe, where the labour market remains more resilient despite some signs of weakness in Germany, the UK and possibly France. He also argued that central banks are confronting a pure supply shock, which monetary policy is poorly equipped to address.
“What central banks can do when it comes to managing inflation pressures and the business cycle is address demand shocks,” he said.
In 2022, both supply and demand factors drove inflation, justifying the aggressive rate hikes that followed. This time, the inflation risk is real but not existential and central banks are unlikely to add uncertainty by changing course abruptly.
For this reason, he does not expect the European Central Bank to hike rates this year.
“If we have more inflation pressures alongside lower growth, it will be very complex to justify a rate hike when the inflation pressures are coming from a supply shock,” he said.
The Fed faces its own constraints. With the labour market cooling and job destruction emerging, a restrictive stance would be hard to justify. The Fed has two objectives – controlling inflation and supporting employment – and both are now in tension.
“This is not the moment for the Fed to adopt a restrictive stance,” Chetouane said, with a warning that any erosion of Federal Reserve’s autonomy would be disastrous: “It would be suicide if the most important central bank in the world were no longer independent.”
US president Donald Trump has had repeated clashes with Jerome Powell over interest rates, with the president pushing for cuts. He has nominated Kevin Warsh as Powell's successor in the hope of getting rates lower.
Chetouane's reading, however, is that Powell is the more accommodating of the two. He described the current Fed chair as the real “super-dove” and suggested Warsh would be unlikely to shift policy as sharply as Trump may be anticipating.
On investment opportunities, Collet has increased exposure to US equities and reduced Europe, noting that the US is a major energy producer while Europe remains import-dependent. Meanwhile, US tech valuations are below their long-term average, which is unusual, and the sector offers growth and visibility.
Chetouane also sees opportunities in European real rates and US inflation breakevens, where markets are pricing long-term inflation below central bank targets. He also pointed to UK and New Zealand rates as offering value.