Global markets continue to recoil in the wake of the outbreak of large-scale military conflict on Feb. 28 between Iran, and Israel and the United States in the Persian Gulf. The price of Brent crude oil has increased significantly since the beginning of the conflict, with Iranian military forces announcing the closure of the Strait of Hormuz and the administration of U.S. President Donald Trump signaling that “Operation Epic Fury” could last for several weeks, The New York Times reported. What does the conflict mean for Latin America? How are spiking global fuel prices affecting Latin America’s largest producers and importers of oil and gas? How will the conflict affect U.S. attention toward other foreign-policy priorities, namely Cuba and Venezuela?
Michael Shifter, senior fellow and former president of the Inter-American Dialogue: “Nearly two weeks into the war between the United States and Israel with Iran, there is no discernible sign that Washington’s focus on the Western Hemisphere has diminished as a result. The Trump administration is showing that it can do many things, in different parts of the world, at the same time. Whether the actions it is undertaking related to Latin America and the Caribbean are a product of a well thought out strategy that effectively advances U.S. national interests and addresses the region’s main priorities, however, is less clear. To be sure, inevitably the escalating tensions and uncertainties triggered by the U.S. administration’s turn to the Persian Gulf have resulted in a temporary diversion of resources and attention by senior officials. The diversion could last longer depending on how the situation unfolds in the Middle East. But the administration’s convening of a dozen like-minded regional leaders on March 7 for the Shield of the Americas summit illustrates the continuing frenetic pace of high-profile acts in the hemisphere. Trump hasn’t stopped making business and trade deals, waging military attacks on boats allegedly carrying drugs in the Caribbean and the Pacific, and strongly pressuring governments on China’s role in the region. The main effect of the Iran war in the region is economic, particularly the sharp jump in global energy prices adding to inflationary pressures. For oil producers such as Venezuela, the roiling energy markets could improve government revenues and trade balances, while oil-importing countries in Central America and the Caribbean will face higher fuel costs, straining public finances. Argentina and Brazil, in particular, could be affected by rising fertilizer and transportation costs. Still, while the war could provide short-term benefits for some countries and pose risks for others, it highlights how vulnerable the region is to global shocks.”
Yohir Akerman, president for the Latin America region at Guidepost Solutions: “Wars in the Middle East rarely stay in the Middle East, and the current conflict is already sending that signal. Brent crude jumped as military escalation put the Strait of Hormuz—the corridor through which roughly one-fifth of global oil supply moves—at risk. For Latin America, higher oil prices are a windfall for exporters such as Brazil, Guyana, Mexico and Colombia. National oil companies and government treasuries benefit immediately as export revenues rise. Brazil’s offshore pre-salt fields and Guyana’s rapidly expanding production are particularly well-positioned to capture this upside. Venezuela, however, is the outlier. Despite holding the world’s largest proven reserves, sanctions, infrastructure decay and licensing restrictions mean Caracas cannot fully capitalize on higher prices the way other producers can. But for much of the region, the story runs in the opposite direction. Countries that rely heavily on imported fuel—particularly in Central America and the Caribbean—face renewed inflation pressure, fiscal strain and more difficult subsidy choices. Even larger economies such as Chile or Peru, which import most of their energy, will see transport and industrial costs rise quickly. The geopolitical implications may prove even more significant. A sustained Middle East crisis inevitably pulls Washington’s strategic bandwidth toward the Persian Gulf. Naval deployments, intelligence resources and diplomatic capital shift quickly when energy flows and regional stability are at stake. The result is less day-to-day focus on the Western Hemisphere. For Havana, that creates strategic breathing room. Sanctions rarely disappear, but enforcement tends to lose urgency when the United States is managing a major conflict elsewhere. Latin America is not a combatant in this war. But as oil markets tighten, inflation rises and geopolitical attention shifts, the region will once again absorb the aftershocks of a conflict fought thousands of miles away.”
Kimberley Sperrfechter, emerging markets economist at Capital Economics: “Latin America is much less exposed to the disruptions caused by the war in Iran than other regions. In part, that’s because its geographic location limits the impact from disruptions to container shipping and airspace closures in the Middle East. More importantly, most major Latin American economies—Brazil, Argentina, Colombia, Ecuador and Venezuela—are net energy exporters, and as such will enjoy a terms-of-trade boost from higher energy prices. Higher energy prices will increase export earnings and domestic incomes and should also lift government revenues through higher tax receipts. That should provide some relief to fragile public finances, especially in Colombia and Ecuador. Most of the revenue is likely to be saved, so the impact on growth will be relatively muted. Among the major Latin American countries, Chile is most exposed to higher energy prices given that it’s a large net energy importer. The crumb of comfort, though, is that the hit from higher energy prices should be partly offset by still-elevated copper prices, and Chile’s healthy balance-of-payments position leaves it well placed to deal with the energy price shock. Otherwise, one common theme across the region is that higher oil prices, if sustained, will put upward pressure on inflation. If oil prices remain at around $100 per barrel, that could add as much as one percentage point to inflation, reversing the recent disinflation progress. Taken together with the fall in currencies since the start of the war, that could prompt most central banks to halt monetary easing cycles and Colombia’s to extend its tightening cycle.”
R. Evan Ellis, senior nonresident fellow at the Center for Strategic & International Studies: “In the short term, the reduction in shipping through the Strait of Hormuz will increase prices. The oil-importing countries of Central America and the Caribbean will be most affected. Everywhere, increases in the prices that truckers and taxis pay for fuel, or that families pay to heat their homes and cook food, will add pressure on marginal populations and possibly generate social unrest. The region will likely also face broader, more gradual inflationary effects as higher petroleum prices affect input costs. In key elections this year in Peru, Colombia and Brazil, price pressures may reinforce popular frustrations with corruption, insecurity and other economic problems to benefit right-wing candidates López Aliaga and Fujimori in Peru, De la Espriella in Colombia and Bolsonaro in Brazil. U.S. military operations in the Middle East will not appreciably affect its security engagement in Latin America, although it may delay the administration for some weeks from fully focusing on Cuba and Nicaragua, and facilitate the ‘normalization’ of the criminal regime in Venezuela selling oil through the United States while preserving most of its repressive apparatus and delaying political transition. In the Middle East, the conflict is more likely to fade than end with either a deal or a democratic transition in Iran. The U.S. decimation of Iran’s navy and ballistic missile threat will decrease headline-grabbing Iranian attacks against its neighbors and the threat to oil flows through the Strait of Hormuz. Still, persistent terrorism and drone attacks and continuing U.S. and Israeli military action will perpetuate the conflict in Latin American and global politics, as occurred with the war in Gaza, but with more significant economic and political effects.”
Beatrice Rangel, director of AMLA Consulting in Miami Beach: “The conflict that began on Feb. 28 between Iran, Israel and the United States has immediate global economic consequences, mainly through energy markets. Because about 20 percent of global oil and gas trade normally passes through the Strait of Hormuz, disruptions there quickly translate into higher prices and economic shocks around the world. For Latin America, the impact is mixed and depends on whether countries are net exporters or importers of energy, as well as on geopolitical dynamics with the United States. Countries that export oil would benefit from higher prices as government revenue and foreign exchange earnings increase. These countries include Brazil, Guyana, Colombia and Venezuela. Energy-importing countries and regions experience the opposite effect: Higher oil prices worsen trade balances and inflation. These are Chile, Peru, Central America and the Caribbean. These nations will experience higher electricity and transport costs, inflation spikes (fuel feeds into food and logistics costs) and increasing pressures on fiscal budgets due to fuel subsidies. For Cuba, it spells surrender—the regime ruling the island for more than 65 years has no way of surviving this test. Most probably, Cuba will succumb to popular pressures for change. For Venezuela, having effectively become a U.S. protectorate, high oil prices should facilitate the transition into a democratic country.”
Marta Tawil Kuri, associate professor at the Center for International Studies at El Colegio de México: “Rising global oil and gas prices are already translating into higher gasoline costs and currency volatility across the region. However, the impact is mixed. Countries like Mexico have a concrete susceptibility due to dependence on imports of refined fuels, while oil import-dependent countries such as Chile, Brazil and Argentina are particularly vulnerable, as fuel-price shocks feed directly into inflation and weaken local currencies against the dollar. Also, food exports to the Persian Gulf countries are being jeopardized by the war; the region’s main agricultural trade partners are Brazil, Argentina, Mexico, Chile and Uruguay. Third, Washington would rely more on economic levers rather than overt military presence in Venezuela and Cuba. In Venezuela, the interim president’s docility ensures Washington doesn’t need to micromanage, freeing bandwidth for the war effort in Iran. About Cuba, Trump said that the plan is to finalize negotiations between Marco Rubio and Havana once the ‘Iran mission’ concludes. Many imponderables could alter this timeline, but it is not improbable that an agreement with Cuba be reached as a way for the United States to gain time while the war effort in Iran continues. Finally, the United States might use the war with Iran to justify stronger pressure on Latin American governments to ‘choose’ which side they support, as Trump did during the brief Iran-Israel War in July of last year. Also, he will probably continue to denounce the Iranian presence in the hemisphere and reinforce a militaristic approach in the ‘Triple Frontier.’”
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