How the Iran War Has Affected the Economic Outlook of Latin America and the Caribbean

Despite a sharper energy price shock, Latin America and the Caribbean has shown greater economic resilience over the last few months than during previous energy crises, although impacts remain highly uneven between commodity exporters and importers. This article updates our earlier assessment of the region’s macroeconomic exposure to the spillover effects of the war in Iran. While the conflict has generated a more sudden and intense price shock than the one triggered by Russia’s invasion of Ukraine in 2022, the region’s economies have built buffers that have allowed them to weather the crisis so far. 

Our analysis compares the import and financial effects of the war in Iran with the spillovers of the war in Ukraine, highlighting how, although both crises rewired global commodity flows, their transmission channels into Latin American markets operate on entirely different scales. For net fuel importers in Central America and the Caribbean, the current crisis has produced a historic external shock, while South American net fuel exporters face an entirely different outcome: windfall export profits alongside inflationary pressures and supply constraints. Overall, however, the shock has not upended regional financial variables, with external credit risk indicators falling consistently since the conflict began. 

Uneven Resources Bring Uneven Effects 

The main consequence of the Iran War has been the direct energy shock that has rippled across the world from the disrupted waters of the Persian Gulf. As the figure below shows, energy prices soared after hostilities began, peaking in April 2026, when oil prices, particularly as measured by the Brent and Dubai market prices, reached levels last seen in 2022. Although energy prices have since begun to gradually normalize, the first notable conclusion is that energy markets in the Western Hemisphere, farther from the conflict, reacted far less negatively to the shock, with a clear price gap between the West Texas Intermediate and Dubai and Brent markets during the height of the conflict. 

The figure above also shows an important difference between the two energy shocks: the pre-2022 crisis price trendline had been rising, driven by the post-pandemic recovery and consequent logistical challenges, while the pre-2026 crisis trendline had been falling. Both conflicts also erupted in February, which simplifies the analysis by eliminating the variations of seasonality. 

To isolate the immediate pressure of these shifting price dynamics on individual economies, we analyze the International Monetary Fund’s (IMF) Commodity Terms of Trade (CTOT) data, tracking absolute monthly index-point deviations from a pre-crisis January baseline, weighted by each country’s import-to-GDP ratio. The data reveals that the early 2026 price volatility, relative to GDP, was more than double the shock observed in 2022, primarily because the 2026 war upended a prevailing downward price trendline with a sudden, dramatic baseline shift. It was the speed of the shock—and the fact that it upended the pre-conflict trend—that set the 2026 war apart from the 2022 conflict in its effects. 

The figure below illustrates this by comparing both crises. For each economy in Latin America and the Caribbean, we take the monthly import index values and subtract the respective January value. Doing so shows how sudden and severe these price changes were in relative terms for each economy. We also calculated a GDP-weighted regional average, aggregating each country’s import cost according to its share of regional GDP, to see which countries were affected above or below that average. 

Comparing the net index differences between January and March peaks highlights that almost the entire region faced a more acute, sudden price impact in 2026 than in 2022. This short-term comparison confirms that while resource-rich, energy-sufficient nations like Argentina, Brazil, Colombia, Mexico, and Venezuela remained insulated, the energy-importing nations of Central America and the Caribbean bore the brunt of the shock. The figure below compares the index differences between January and March of each year—a useful metric, since March proved to be the peak month in both conflicts, confirming this trend. 

In practice, it is important to remember that behind these price indicators lie countless human stories. Higher import costs for fertilizer, for example, have added pressure on Brazilian farmers, while rising energy costs have strained families and commuters in countries from Chile to Mexico. The energy hike also fuelled a sudden inflationary spike around the world, but, as the next section shows, stronger economic fundamentals than in 2022, along with more firmly anchored inflation expectations in most countries, have helped contain an inflationary spiral so far. 

A Stronger Starting Position Makes a Difference 

To evaluate the region’s capacity to withstand this external strain, we now track the net accumulation of gross foreign currency reserves, contrasting the actual drawdowns of the 2021–2022 crisis against the IMF’s latest 2025–2026 projections. 

Unlike the highly fragmented reality of 2022, most regional economies are projected to accrue sizable reserves throughout 2026, significantly strengthening their external defensive positions. This accumulation demonstrates that maintaining robust foreign exchange buffers is a prerequisite for market stability; regional central banks must continue prioritizing reserve adequacy to defend local currencies and maintain import liquidity during global supply shocks. This is very important because, during an external crisis like this one, emerging markets such as those in Latin America are judged by creditors and investors on their ability to weather these storms while remaining solvent enough to meet their obligations. 

To gauge how international markets assess this performance, we examined the daily evolution of J.P. Morgan’s Emerging Market Bond Index, which measures sovereign credit risk premiums relative to the global emerging market average. 

The index shows that since the war in the Middle East began, Latin America and the Caribbean’s risk premium has fallen consistently and outperformed the global average—a sharp contrast to 2022, when the region moved in lockstep with its global peers. This decoupling suggests that global markets have rewarded the region’s comparatively lower perceived risk. Of course, there are also parallel drivers to the reduction of regional risk, including notable drops in the scores of Argentina and Venezuela, but the point remains: by moving toward fiscal consolidation and safeguarding central bank independence, regional governments have so far managed to shield their economies from capital flight during this major geopolitical crisis. 

This is so because the region has continued to do its homework: tightening fiscal spending, cementing central bank independence, accumulating reserves, and gaining market confidence. There is still much to do across many countries on all these fronts, and the region is expected to experience slow growth for the foreseeable future, but this time, the crisis has hit it while it was arguably better prepared. 

The Future Remains Uncertain 

All in all, although the energy shock that erupted this year was sharper and more pronounced than the 2022 crisis, it has not proven to be the disruptive event that many feared it would be. Without minimizing the human suffering and economic damage that many around the hemisphere and the world are experiencing, the data nonetheless shows that, although the economic pain is real and the crisis is certainly historic, it has not yet amounted to a disruption that could upend the regional economy. The recent reescalation in the Gulf, however, does give us pause and serves as a reminder that what lies ahead is not necessarily a smooth downward path for global energy markets. 

Another factor worth considering, and a good example of how hard the future is to predict in economics and geopolitics, is the secondary or indirect damages to Venezuela’s oil exploration and production capacity following the two recent earthquakes that struck the country a couple of weeks ago. Damage to Venezuela’s oil infrastructure could also affect the reliability of heavy-oil sourcing for the region’s fuel-importing countries that depend on it. Power outages and damage to seaport infrastructure and roads could create undetermined delays in the supply chain. This adds further pressure to those in the region that depend on fuel imports. 

The future remains uncertain, and the opportunities for some, in particular fuel exporters like Argentina, Brazil, and Guyana, may be accompanied by losses for importers like Chile, Uruguay, and the countries of Central America and the Caribbean. Nevertheless, it is worth mentioning that despite the severity of the crisis, the region has remained stable, proving that structural resilience, proactive monetary policy, and bolstered external buffers can help insulate Latin America and the Caribbean from the effects of distant geopolitical conflicts. Moving forward, the critical challenge for regional policy-makers will be to lock in these institutional gains, ensuring that the current macroeconomic stability serves as a foundation for long-term growth—seizing the opportunity presented by conflict in far-off regions to cement the region’s role as a zone of peace, stability, and resources that can help balance global commodity markets.

By Enrique Millán-Mejía and Ignacio Albe 

The views expressed in this article are those of the author(s) and do not necessarily reflect those of IISD.