How the war in Iran is affecting the main economies of Latin America

Latin America’s major economies are cautiously watching how they will be affected by the war in Iran and the consequences of rising oil and gas prices. Oil-producing countries, such as Venezuela, may benefit from the situation, while others, like Mexico, have compensation mechanisms in place to prevent price increases from impacting consumers. However, the risk of inflation and the devaluation of local currencies against the dollar remain the main challenges.

Venezuela and the former Iranian ally

During the Chavista regime, Iran solidified its position as one of Venezuela’s closest allies, undertaking agricultural and manufacturing projects that ultimately failed due to inefficiency and corruption. In more recent years, Tehran played a key role in supplying refined fuel amidst international sanctions and the operational collapse of the state oil company PDVSA, when endless lines at gas stations became a daily reality in Venezuela. Iran also began using a fleet of “phantom” ships to move Venezuelan crude and circumvent restrictions.

Following the U.S. military intervention on January 3, the geopolitical landscape has been reshaped for Venezuela. During the weekend of the attacks in the Middle East, the Foreign Ministry issued a statement “regretting” the attack against Iran, without naming those responsible, and condemning the response of the attacked country. The message was deleted hours later.

Since then, Iran’s main Latin American ally has maintained a low profile regarding a conflict that, as an oil producer, could benefit it due to rising crude prices. Only this Tuesday did acting president Delcy Rodríguez allude indirectly to the issue when reporting on a telephone conversation with the Emir of Qatar, Tamim bin Hamad Al Thani. “I conveyed our solidarity in the face of the serious situation of instability and violence that has erupted in the Middle East, which has placed the entire region on the brink of a dangerous escalation of war,” she stated.

The interim government, now under Washington’s tutelage, faces a dilemma in light of the new escalation instigated by Donald Trump. The operation that culminated in the capture of Nicolás Maduro and his transfer to a New York jail has led to direct scrutiny of Venezuelan oil activity from the White House. Two weeks ago, Rodríguez toured oil fields alongside U.S. Energy Secretary Chris Wright. The licenses granted by Washington to U.S. companies include explicit prohibitions on dealings with entities and individuals from sanctioned countries, including Iran.

The immediate impact of the conflict in the Middle East could be felt in revenue. Analysts like Alejandro Grisanti, director of Ecoanalítica, warn that attacks on energy infrastructure, the blockade of the Strait of Hormuz—through which a third of the world’s crude oil passes—and damage to refineries would strain global supply. Venezuela currently produces about 1.2 million barrels per day, a modest but strategic share in the context of an energy crisis. According to Grisanti, for every additional dollar in the average price of crude oil in 2026, the country would receive about $400 million extra; if the recent price increase continues, this could add around $2.4 billion.

Mexico tries to cushion the potential price increase

Mexico is the fourth largest oil producer in the Americas, with 1.6 million barrels per day. The Mexican government has shifted its energy policy in recent years to strengthen the domestic market and incentivize refining at home. This shift is reflected in the 44% drop in exports in January of this year. The latest report from Pemex, the state-owned oil company, indicates that Mexico did not ship any barrels to any Middle Eastern countries and concentrated its shipments on Europe and the Americas. Furthermore, Mexico imports almost half of the gasoline it consumes, primarily from the southern United States. The attacks in Iran have left Mexican crude vulnerable to the prices of WTI, due to its proximity to Texas, and Brent. The Mexican crude blend was quoted at $63.46 per barrel on Friday, February 27, and closed at $66.63 on Monday, in line with the increases in the main benchmarks on the market. “We do not estimate any impacts for Mexico, since it does not depend on Iranian oil or critical routes such as the Strait of Hormuz,” Banamex said in a report.

Mexican President Claudia Sheinbaum has reassured the public regarding a potential rise in gasoline and gas prices due to increased tensions in the Persian Gulf. She recalled that, during the war in Ukraine, her predecessor created a compensation mechanism to adjust the Special Tax on Production and Services (IEPS) to mitigate the impact of rising fuel prices, preventing consumers from bearing the brunt of the increase. “And in the event of a drop [in oil prices and an impact on Pemex], we have insurance policies that provide coverage,” she noted on Tuesday. Sheinbaum stated that Mexico will not benefit from the Brent crude price increases on its own exports, as these are offset by the price hikes in gasoline, jet fuel, and liquefied petroleum gas, which are still imported.

Argentina, between favorable exports and the specter of inflation

In Argentina, rising oil prices are making energy exports more profitable, and these exports are growing in the country thanks to increased production from Vaca Muerta, an unconventional oil field in Patagonia that fuels Javier Milei’s dream of turning the country into an oil powerhouse. Furthermore, the rising price is making investments in the development of this basin more attractive, as it requires infrastructure to increase extraction capacity through fracking and to transport the production.

According to Marcelo Elizondo, an economist specializing in international trade, the armed conflict could also push up the prices of agricultural products, another of Argentina’s strong export sectors, which represent around 60% of its total exports. The increased cost of fertilizers—the Iranian region produces 15% of the world’s urea—and the higher cost of fuel for harvesting machinery, as well as the increased freight costs for international grain transport, are factors that will put upward pressure on prices.

But not all the impact will be positive. The increase in these basic goods could be passed on to domestic prices in a country extremely sensitive to inflation. This could further complicate Milei’s project to stabilize the situation that Argentina has been suffering for decades and that has led to violent price increases, such as the 210% annual rise in 2023. “There are conflicting forces at play, but it would seem that there are more factors favoring the Argentine economy, even though a conflagration is never good news,” Elizondo points out.

Global instability is often a reason for investors to migrate from emerging markets to safer ones, which can affect the local exchange market and drive up the dollar’s value due to the outflow of foreign investors. “Countries with low foreign exchange reserves, such as Argentina, Sri Lanka, Pakistan, and Turkey, face greater risks of sudden capital outflows and currency depreciation,” stated a global report from Citi bank.

Brazil, keeping an eye on agriculture

For Brazil, the moment calls for caution because it could face two opposing consequences. On the one hand, as a major oil producer (around 3.7 million barrels per day), rising prices could benefit the sector and position Brazil as a strategic supplier outside the conflict zone. Shares of the semi-state-owned oil company Petrobras rose sharply on Monday morning. With increased revenue in the energy sector, the government will also see a rise in tax collection.

However, experts estimate that higher oil prices on the international market will eventually put pressure on fuel prices in the domestic market. Transportation in Brazil is primarily done by truck, so the increase in diesel prices ultimately raises food prices and spreads inflation across all sectors of the economy.

Another area of ​​concern for Brazil is agriculture. The country boasts being one of the world’s largest food producers, but its agricultural sector is heavily dependent on fertilizer imports, which in turn rely on natural gas. If the conflict significantly impacts gas prices and raises global costs, Brazil could see its precious agricultural inputs become more expensive.

Chile and the devaluation of the peso

Chile has a diversified crude oil import mix, which reduces the risk of shortages, leading analysts to call for calm. The dollar, meanwhile, responded to the escalating conflict with a sharp rise of 14.8 Chilean pesos, reaching 886.8 pesos (selling price) in the early hours. Increased demand for the U.S. dollar—a safe-haven asset—is expected, so the Chilean peso may continue to depreciate in the coming days or weeks.

Colombia and the risk of exchange rate pressure

Colombia is a unique case in Latin America: it is neither an oil giant nor a net importer. This intermediate position means that the disruptions caused by the war cannot be interpreted in a single way, and the net effects are particularly uncertain, even if the war continues. On the one hand, the country benefits in its trade balance from a higher price per barrel, as crude oil accounts for about 25% of its exports. Furthermore, each extra dollar in the price adds about $100 million in tax revenue, very welcome in an economy whose main concern is a growing fiscal deficit. However, on the other hand, the country faces the risks of exchange rate pressure. In fact, between Tuesday and Wednesday, the peso devalued by 0.7% against the dollar, which broke the 3,800-peso barrier for the first time this year. There are also some signs of capital flight, as is common in emerging markets, towards more established investments during these types of geopolitical crises. The Colcap index, which tracks the main stocks on the Colombian stock exchange, fell 4.42% in the two trading days since the attacks began.

With reporting by Florantonia Singer (Caracas), Sonia Corona (Mexico), Joan Royo (Rio de Janeiro), Antonia Laborde (Santiago de Chile) and Delfina Torres (Buenos Aires).

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