Tensions in the Middle East: Macroeconomic and Financial Impacts for Latin America

Sergio Olarte

Macro Reasearch Department

This analysis, prepared by our Economic Research team, examines the potential macroeconomic and financial effects for Latin America in a context marked by rising geopolitical tensions in the Middle East, which once again place energy at the center of the global economy.

Some key highlights from the report:

• Tensions in the Middle East are entrenching as a persistent source of volatility, raising risks to global markets and reigniting the possibility of international trade bottlenecks.
• The Persian Gulf plays a central role in the global energy supply, while the Strait of Hormuz is positioned as a critical node not only for energy transport, but also for the flow of agricultural inputs.
• For now, two potential supply shocks are emerging – energy and petrochemical – that revive the risk nervousness seen at the early stages of the Russia–Ukraine conflict.
• Latin America's direct trade exposure with the Persian Gulf countries is limited, accounting for just 2.0% of the region's total trade.
• Oil prices are once again positioned as a relevant source of uncertainty, given the heterogeneity of their effects in Latin America. While some South American countries would benefit from higher prices, Mexico and Central America would face greater inflationary pressures and a deterioration of their external accounts.
• In financial markets, credit spreads have begun to react to the conflict, moving away from their historic lows. However, the movement so far, is limited and remains well below the stress episodes recorded in 2022.
• Energy commodity futures have reacted strongly to the upside, reflecting latent risks to global supply. However, the market continues to internalize this shock as transitory.

Read the full report here: Tensions in the Middle East: Macroeconomic and Financial Impacts for Latin America