How does the oil shock filter through Latin American economies?

2) How have governments managed swings in fuel prices?

Among the net crude exporters—Brazil, Mexico, and Colombia—all three are smoothing the pass-through of higher oil prices to consumers through subsidies, tax adjustments, or regulated pricing, at a fiscal cost. If prices retrace within a quarter, these costs are manageable. If oil hovers near $100 into the second half, the buffers erode and governments face a harder choice between protecting consumers and preserving fiscal space.

For net importers like Chile and Peru, there is less room to absorb the shock. Without sizable crude export revenues to fund subsidies, a larger share of the price increase reaches consumers more quickly, tightening the monetary policy trade-off if the rise persists. In these cases, the central bank reaction function becomes the primary line of defense.

3) What have countries done to address the short-term impact?

• Brazil cut federal fuel taxes and introduced a BRL 10bn diesel subsidy, offset by temporary crude and diesel export taxes, keeping the fiscal impact roughly neutral and the direct CPI effect minimal. Disinflation is still on track, backed by deep local markets and stable external accounts, though the easing stance has turned more cautious as energy lifts headline prints. What to watch: fuel tax and administered-price settings, and inflation expectations.
• Mexico’s fiscal impact is expected to be broadly neutral, and the Ministry of Finance plans to adjust gasoline prices only gradually, similar to 2022. A peso that has remained relatively strong helps contain imported inflation too, though growth is cooling and 1Q GDP is tracking a 0.6% contraction. The Board has enough flexibility either to consider resuming the easing cycle or to extend the pause as the dust settles. What to watch: the persistence of tax smoothing and retail fuel spreads.
• Colombia sees a positive terms-of-trade boost from higher oil prices, but the fiscal transfer mechanism largely neutralizes the revenue gain. The bias is tight to protect credibility while fuel-price alignment and fiscal needs complicate choices. What to watch: the pace of regulated price adjustments and fiscal signals.

• Chile and Peru face negative terms-of-trade shocks as net oil importers, but sizable metals exports help offset the higher energy bill. In 2024, Chile’s copper exports were about $48.3B and gold about $1.2B, while Peru’s copper was roughly $22.9B and gold about $12.8B. That support helps the trade balance even as the near-term risk is inflation if the oil shock persists, which could pause easing as authorities lean on fuel stabilization tools and clear guidance to keep expectations anchored.

Our view: The oil shock is filtering through Latin America along the lines laid out above: who produces, what policy can do, and how each country is positioned. Exporters benefit from stronger crude revenues, but limited refining capacity and the cost of shielding consumers from pump-price increases mean much of the windfall leaks out. Across the board, the conflict could push central banks toward a more hawkish posture, complicating easing cycles that were already late-stage. Whether this remains a manageable headline-inflation episode or broadens into a growth drag depends on how long oil stays elevated.

Should the conflict wind down, Latin America's structural energy profile works in its favor. Four countries are net petroleum exporters, the importers carry sizable metals buffers, and domestic production shortens the supply chain between the wellhead and the consumer. That is a relatively favorable starting point compared with more import-dependent regions like Europe. A normalization in crude would ease headline inflation across Latin America faster and give central banks more room to resume easing.