In today’s Market Minute, we bring you a guest column by Bertrand Delgado, who is a former director of global research and strategy at Société Générale and HSBC Securities and specializes in Latin America.
The impact of the war in Iran on Latin America will depend largely on how long the conflict lasts and its effects on inflation and growth prospects.
During the first few weeks of the war, Latin American economies have shown resilience amid the disruption in energy flows out of the Persian Gulf.
Get Joe Brusuelas’s Market Minute economic commentary every morning. Subscribe now.
The International Monetary Fund issued only a modest downward revision in its reference forecast for Latin America and the Caribbean, to 2.3% this year and 2.7% next year. The IMF now anticipates that the Brazilian economy will increase by 1.9% this year and 2% next year, with Mexico’s economy advancing by 1.6% and 2%.
The closure of the Strait of Hormuz drove up not only oil and liquefied natural gas prices, but also the cost of important inputs for food production such as fertilizers.
Latin American markets were not immune as they were hit by rising volatility in risk premiums, risk appetite, terms of trade, the U.S. dollar, and overall financial conditions.
But since the ceasefire announced on April 7, oil prices and other risk indicators have started to stabilize, though at a higher level than before the war.
Looking ahead
It will be important to monitor market expectations for global central bank actions, oil price dynamics and maritime flows through the strait to assess whether the initial positive market response to the ceasefire can be sustained.
Latin America’s geographic distance from the center of the conflict and its position as a net commodity-exporting region—particularly for countries that are net oil exporters such as Brazil, Colombia and Mexico—have provided a degree of insulation despite the initial broad risk-off reaction.
The region has shown resilience compared to others. Net oil exporters have benefited from improved terms of trade, creating opportunities to accumulate international reserves and strengthen fiscal buffers.
This helps mitigate the impact of the oil shock on inflation (through tax reductions or subsidies on imported fuels) and on growth (through stronger net exports).
In contrast, net oil importers like Chile and Peru face more pressure. Overall, macroeconomic management in the region has been relatively solid—though Colombia’s fiscal stance remains a weak spot —supporting Latin America’s attractiveness during the current supply shock.
The sharp rise in oil and food-related input prices in March is likely to lift headline inflation and inflation expectations in the near term, prompting Latin American central banks to adopt a more cautious tone.
This is especially relevant for those near or at neutral policy stances (Chile, Mexico and Peru) or still in tightening mode (Colombia). Brazil’s central bank is expected to continue easing, albeit at a slower pace than previously anticipated.
Following the ceasefire announcement, market pricing reflected reduced expectations of additional hikes in Colombia, Chile and Mexico, and a less aggressive easing cycle in Brazil.
The trajectory of these policy paths will depend on how soon the conflict is fully resolved and how quickly conditions normalize.
Central banks will closely watch for changes in core inflation, consumer confidence and the labor market.
While a global supply-side shock is likely to be viewed as transitory for inflation, it will still exert downward pressure on Latin America’s already subdued growth outlook. Policymakers will also monitor global financial conditions—particularly volatility, the American dollar, U.S. Treasury yields, and expectations for the Federal Reserve and European Central Bank.
Latin American foreign exchange and rates are likely to recover recent losses (notably the CLP and PEN) or extend strong performance (BRL, COP and MXN) if the ceasefire holds and peace negotiations between the United States and Iran progress.
High carry-to-volatility ratios, wide interest rate differentials, improved risk appetite, and more appealing valuations should continue to support Latin American currencies. The region’s rates markets should also benefit from a more supportive external backdrop.
Finally, Latin America’s relatively calm political cycle and low geopolitical risk strengthen its appeal.
Recent elections across the region have generally produced market-friendly outcomes—most recently in Chile, where the government has shifted to the right.
Although Chile remains an oil importer, stable copper prices, robust macro fundamentals and a pro-business administration should help cushion external shocks.
Upcoming elections in Peru, Colombia and Brazil could further consolidate this trend toward centrist or center-right governance, supporting structural reforms, improved macro management and enhanced security.
In Mexico, strong economic integration with the United States, further progress on bilateral security cooperation and constructive negotiations on the upcoming USMCA talks are likely to maintain a favorable backdrop.
More broadly, Latin America’s low geopolitical risk compared to other emerging market regions positions it to benefit from global supply chain realignment, given its proximity to the U.S. and sound trade relations with both the EU and Asia.
