Middle East war rocks Latin America

The impact is mixed, with pluses for producers and hiked prices for consumers.

WHAT: The oil shock from the Middle East war is hitting Latin America hard.

WHY: Latin America includes major oil producers such as Brazil, Argentina and Guyana.

WHAT’S NEXT: A conflict lasting several weeks or even months could be a fiscal windfall for producers and exporters.

The Middle East war is the largest disruption to global oil output ever, and the jitters are rumbling through Latin America. The impacts on producers, inflation and consumers are complex and potentially major. For example, for Colombia's state-owned Ecopetrol, each $1 shift in the average Brent price changes the company's annual net profit by about $122mn.   

Brazil producers stand to gain, consumers under pressure

Heightened tensions in the Middle East are rippling through Brazil’s energy and agricultural sectors, creating both opportunities for oil producers and new pressures for fuel consumers.

Executives at UK supermajor Shell say instability involving the US, Israel and Iran could ultimately draw more investment into Brazil’s oil industry. According to Cristiano Pinto, the company’s country head, the geopolitical situation may encourage investors to look toward regions considered less exposed to conflict.

“This creates an opportunity for regions that are farther from the conflict, as they are attractive ports for future investments. But for this to happen, tax competitiveness, regulatory stability, and speed in the environmental licensing process are necessary,” Pinto said in Rio de Janeiro, according to Reuters.

Shell has already expanded its presence in the country. Pinto noted that the company increased its exploration portfolio from 10–15 blocks in 2021 to around 50 today after investing BRL12.5bn ($2.39bn) last year. Brazilian production reached around 496,000 barrels of oil equivalent per day (boepd) in late February, he said. The firm is evaluating new drilling activity in the Santos Basin and considering future exploration in the Pelotas area later this decade.

At the same time, the state-controlled Petrobras is navigating volatile oil markets. Management said a sustained rise in crude prices could eventually allow additional dividends, though the outlook remains uncertain. Chief financial officer Fernando Melgarejo said the company would “love” to distribute extraordinary dividends if high prices persisted but added: “We don't see any possibility at this time of an extraordinary dividend distribution this year.”

Petrobras reported strong results for 2025, with net income reaching BRL110.1bn ($19.6bn) and production around 3mn boepd. Chief executive Magda Chambriard said the company aims to shield Brazilian consumers from sharp swings in energy markets. “We're living in a time of high geopolitical instability, where our concern is to leave the company prepared for any scenario that may occur regarding the price of oil,” she said.

The surge in crude prices—Brent recently climbed above $90 a barrel and briefly exceeded $100—has also sparked debate in Brasília about fiscal implications. Officials say stronger prices could boost government revenue from the oil sector above the level assumed in the 2026 budget, which was based on an average Brent price of $64.93 per barrel.

Yet higher oil prices are already creating challenges elsewhere in the economy. Brazil imports a significant share of its diesel, and rising costs are hitting farmers during a crucial harvest and planting period. “Right now, the main issue is the price of diesel. We saw oil move from around $80 to the $100-per-barrel range, and that has caused alarm in the countryside,” said Bruno Lucchi, technical director at the CNA farm lobby.

Mexico’s Sheinbaum focuses on consumer issues

Mexico is preparing measures to protect domestic fuel prices as geopolitical tensions in the Middle East drive volatility.

President Claudia Sheinbaum said the government could activate a mechanism that reduces the country’s fuel excise tax if international prices rise because of the conflict. The policy would aim to limit the impact on consumers should the cost of producing or importing petrol increase.

“If the price of petrol production or imports rises, there is a mechanism through a reduction in IEPS so that prices do not increase in our country,” Sheinbaum said during a morning press conference. She noted that the tool had previously been used by former president Andrés Manuel López Obrador in 2022 when energy prices surged following Russia’s invasion of Ukraine.

Mexico continues to import part of the petrol it consumes, leaving pump prices partly tied to international crude benchmarks. The government therefore sees the tax mechanism—known as the IEPS—as a key buffer against sudden price spikes. According to Sheinbaum, the finance ministry can lower or suspend the tax when global prices cross certain thresholds so the increase does not immediately reach consumers. “There is a finance ministry scheme so that if prices rise above a certain level, an IEPS subsidy kicks in so that it does not affect Mexican families. It is a tax reduction,” she said.

Authorities are also working with other state institutions to monitor the situation. Sheinbaum said the Energy Ministry, the Finance Ministry and the Federal Electricity Commission are coordinating efforts to ensure the conflict does not place additional strain on household budgets. “We are working so that it does not represent an increase for Mexican families,” she said, adding that officials currently do not anticipate a rise in gas prices.

In parallel, the administration plans to renew an agreement with fuel retailers that caps the price of magna-grade gasoline at MXN24 ($1.36) per litre. The arrangement is reviewed every six months, and Sheinbaum noted that because the ceiling does not rise with inflation, it effectively lowers the real price over time.

The measures come as global oil markets react to escalating tensions around Iran, a major oil producer that sits alongside the strategically vital Strait of Hormuz. The waterway handles roughly one-fifth of global oil flows, making any disruption a potential catalyst for higher prices.

For Mexico, higher crude prices present a mixed picture, reports Mexico Business News. Rising benchmarks can boost government revenue—official estimates suggest each $1 increase in the average oil price could add about MXN10.7bn to federal petroleum income—but they also raise costs across energy, transport and logistics sectors.

By keeping the fuel tax mechanism ready and coordinating closely across agencies, Sheinbaum’s administration is signalling that limiting fuel price volatility remains a central economic and political priority as global energy markets face renewed uncertainty, said the publication.

Argentina faces a dilemma

Rising geopolitical tensions in the Middle East are reshaping Argentina’s oil outlook, offering potential gains for exporters while creating uncertainty for domestic prices and economic policy.

Analysts say the impact on Argentina will depend largely on how long the disruption lasts. Julián Rojo, an energy economist at the Instituto Argentino de la Energía General Mosconi, said that “any permanent impact is still uncertain” and it remains unclear whether the conflict will reshape market fundamentals in a lasting way.

Higher oil prices could nevertheless strengthen Argentina’s external accounts. Daniel Dreizzen, director at Aleph Energy, said stronger crude benchmarks typically translate into higher export earnings. “With rising international oil prices, exports increase. For every dollar increase in the price, Argentina’s trade balance improves by $125mn,” he said, estimating that a sustained $10 increase could bring more than $1.2bn in additional export revenue.

President Javier Milei has also highlighted potential benefits from the current environment. “In this context, Argentina will see an improvement in its terms of trade because oil is rising and Argentina is a net exporter,” he said in a radio interview, adding that grain prices have also strengthened alongside energy markets.

The country’s shale development at Vaca Muerta remains central to the industry’s prospects. Production from the formation becomes particularly attractive when oil trades above roughly $50 per barrel, meaning sustained higher prices could support drilling activity and expand exportable supply.

However, higher crude prices also carry risks for domestic consumers and inflation. Around 70% of Argentina’s oil is sold within the local market, meaning international price movements could eventually influence petrol pump costs.

State-controlled YPF has signalled it will attempt to soften that impact. Chief executive Horacio Marín said the company will avoid immediately transferring global price spikes to motorists, using a pricing formula that averages costs over time. “We have a pricing policy that we average over time, we call it a moving average, which runs over the days. What we try to avoid is passing prices on to consumers very quickly,” he said.

Marín warned though that sustained high prices would eventually filter into the domestic market. “If oil prices stay high for months, it will end up impacting the pump price, as it will economically around the world, but it will be very slowly,” he said.

Meanwhile, Argentina’s broader energy reforms face additional pressure. Surging international gas prices have complicated the government’s plan to shift LNG imports to private operators without subsidies, while a court ruling has questioned the removal of real-time fuel price reporting requirements.

Taken together, the developments highlight how Argentina’s expanding oil sector could benefit from stronger global prices even as policymakers try to manage the domestic consequences of volatile energy markets.

Colombia’s Ecopetrol may raise output

Colombia’s state-controlled oil producer Ecopetrol has indicated it may raise investment and boost short-term output if the current rally in global crude prices continues, as tensions in the Middle East reshape energy markets.

Chief executive Ricardo Roa said the company is assessing whether stronger oil prices justify moving spending toward the upper end of its existing capital programme. Brent crude briefly climbed to more than $100.

“We will of course be reviewing the situation,” Roa said, adding that Ecopetrol could increase capital expenditure within its 2026 range and potentially lift production if market conditions persist that are favourable to Colombian oil producers.

The company currently plans to invest between $5.4bn and $6.7bn this year. Around 57% of the total budget is directed toward exploration and production, with electricity transmission unit ISA accounting for roughly a quarter. Smaller shares are allocated to refining, midstream assets and energy-transition initiatives.

The prospect of higher oil prices comes as Ecopetrol reported weaker financial results for 2025. Net income reached $2.4bn, or COP9 trillion, almost 40% lower than the previous year and the company’s weakest annual profit since the pandemic period. Revenue also declined by just over 10% year-on-year to COP119.6 trillion as lower crude prices during much of the year and a stronger Colombian peso weighed on earnings.

Despite the profit decline, the company maintained steady operational performance. Average production reached 745,300 bpd in 2025, while refinery throughput stood at roughly 417,000 bpd. Ecopetrol also exceeded its drilling plans, completing 16 wells compared with an initial target of 10.

Oil price volatility has a significant financial impact on the company. Roa said each $1 shift in the average Brent price changes Ecopetrol’s annual net profit by about $122mn, with EBITDA moving by roughly $186mn per dollar. The firm’s planning assumption for 2026 was based on Brent at $60 per barrel.

Industry analysts note that rising prices can quickly translate into higher export revenues for the country. Oscar Ferney Rincón, executive director of oil association Acipet, estimated that every $1 increase in Brent generates about $750,000 per day for Colombia’s petroleum sector, La República reported.

However, geopolitical instability also creates new risks. Finance chief Camilo Barco said shipping costs have risen sharply amid tensions around key maritime routes, potentially offsetting some benefits from stronger crude prices.

Colombia remains a net oil exporter, but growing reliance on imported natural gas has left the country more exposed to global energy volatility. According to analyst Sergio Guzmán, the situation could still deliver “a temporary windfall for Ecopetrol,” though broader fiscal challenges remain for the Colombian economy.

Guyana also faces good and bad news

For Guyana, which has rapidly emerged as a major new oil exporter in recent years, the oil price increase presents a complex economic picture. On the positive side, stronger crude markets can substantially boost national revenue. The government receives income from offshore production through direct crude sales as well as royalty payments that are deposited into the country’s sovereign wealth vehicle, the Natural Resource Fund, said the Guyana Standard.

When officials introduced the 2026 national budget, they based their projections on an average oil price of $59 per barrel, but now the yearly average could end up significantly higher if geopolitical tensions persist and supply remains constrained.

Under the government’s original forecast, Guyana expected about $2.35bn in revenue from oil sales during 2026, along with roughly $375mn in royalty payments. Sustained high prices could therefore increase the flow of money into the Natural Resource Fund, potentially strengthening public finances and expanding fiscal space for infrastructure and development spending.

However, the benefits of higher oil prices are not without drawbacks for the domestic economy. Even though the country is producing large volumes of crude offshore, Guyana still depends heavily on imported fuels to meet local energy needs. This means that global price increases can translate into higher costs within the domestic energy system.

What’s next?

The overall impact of the oil rally and instability therefore remains mixed. While stronger prices can boost government income and accelerate the accumulation of oil wealth, they also raise costs if there are fuel imports and for energy generation at home.

Ultimately, the trajectory of the market will depend on how the conflict in the Middle East evolves and whether concerns about supply disruptions ease in the coming months. The duration of elevated prices will determine whether the current rally becomes a lasting fiscal windfall or only a temporary shift in Latin America’s energy outlook.