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WASHINGTON—When Russia launched its full-scale invasion of Ukraine in February 2022, the ensuing disruption to global energy and commodity markets sent a shock through the global economy. This year, the Iran war has set off another energy shock that is rippling outward from the closure of the Strait of Hormuz, which typically carries around a fifth of the world’s oil and natural gas supply. As in 2022, Latin America and the Caribbean face a complex economic outlook as a result of the conflict. This edition of Economic Pulse of the Americas analyzes what past energy shocks and recent data reveal about how the Iran war could shape the region’s economic trajectory.
Scarce energy, higher prices, slower growthInflation expectations are already rising across the region. As the graph below shows, the International Monetary Fund’s April 2026 consumer price index projections point to higher inflation than its October forecast. This shift is not surprising. A similar pattern emerged after Russia invaded Ukraine in 2022. As the second graph below shows, actual inflation for Latin America and the Caribbean that year ended up being significantly higher for most countries compared to the pre-invasion projections from October 2021, reflecting a broader global pattern.
As energy prices rose in 2022, additional pressures followed. Limited access to fuel and fertilizers (many of which are byproducts of natural gas production) led to higher food prices, which dampened growth by raising the cost of imports and production inputs. Some net energy and agriculture exporters benefited from higher export prices, but economies across the hemisphere still faced inflationary pressures.
The chart below compares inflation trends over the past four years across Latin American and Caribbean economies, presented as a gross domestic product–weighted regional average (excluding select high-inflation countries). In 2022, both inflation and energy prices rose in sync. Pandemic-related stimulus spending and supply-chain disruptions also contributed, but the energy shock extended the inflation cycle, forcing central banks to keep interest rates higher for longer to curb inflation. Higher interest rates tend to dampen growth, encouraging capital to move away from consumption and investment and toward interest-bearing financial instruments.
As the first chart showed, inflationary pressure is already rising. In Chile, historically a fuel importer, regulators were forced to hike gas prices by up to 54 percent in March. Other countries, such as Bolivia, Colombia, and Ecuador, are facing rising fuel subsidy costs, putting pressure on government finances. In Brazil, a major energy exporter that still imports most of its diesel, the government responded by eliminating federal diesel taxes and raising export duties on crude oil and diesel to discourage outbound shipments.
This is where additional pressures emerge. Brazil has faced an inflationary rebound since early 2024, prompting the Central Bank of Brazil to raise the Selic interest rate to 14.8 percent, above the 13.8 percent peak in 2022. With global inflationary concerns rising, the central bank will most likely slow the pace of interest-rate cuts. These rates stifle growth and have fiscal effects, raising the cost of interest payments on government bonds and increasing the ratio of debt to gross domestic product.
Inflation projections have worsened since the Iran war began. All major economies are expected to experience an inflationary rebound. Countries such as Brazil and Mexico already have high interest rates that are at or near restrictive levels for growth.
Supply impacts for the hemisphereThe outlook for economies in the region varies by the resources, industries, and sectors in each country. As the table below shows, countries most exposed to fuel and food prices are import-dependent economies in Central America and the Caribbean, which rely heavily on external supplies. These countries face the greatest risk of supply shortages and price shocks, with direct consequences for economic growth.
If the effective closure of the Strait of Hormuz persists, and if critical supplies of energy and fertilizers continue to be affected, these import-dependent nations will be hit hardest in the Western Hemisphere. At the same time, resource-rich South America is not free of risk. While energy exporters benefit from higher prices, they also face constraints. Countries that import diesel and fertilizer, such as Brazil, Paraguay, and Uruguay, will see key sectors constrained by limited inputs. For example, urea prices, critical for fertilizers and agribusiness, have already risen by half.
Energy shocks do not produce clear winners and losers. Even when export revenues rise, households and firms face higher costs.
The effects on public and private financesFinancial spillovers from the conflict are affecting the region, as well. Ten-year sovereign bond yields have risen across advanced and emerging economies, including Mexico. In Latin America and the Caribbean, higher yields translate into higher borrowing costs and renewed inflationary pressure.
If this trend accelerates, countries with significant short-term external debts, often denominated in foreign currency, will face increased pressure. These obligations become harder to roll over as interest premiums rise, meaning short-term relief can create medium-term vulnerabilities. Although foreign exchange reserve levels vary across the region, countries with lower credit ratings, higher short-term debt burdens, and weaker reserves are more exposed to financial stress.
Crises also bring opportunitiesAlthough the duration and scope of the Iran conflict remain uncertain, several trends are clear: Energy and commodity shortages are pushing inflation higher, tightening financial conditions, and slowing growth. Import-dependent economies in Latin American and the Caribbean generally face the greatest risks in the Western Hemisphere.
But the crisis also creates opportunities. Countries in the region can attract investment into energy sectors that reduce global dependence on concentrated supply chains. Argentina, Brazil, and Guyana are important examples. Others can follow countries such as Chile by accelerating investment in renewable energy to reduce reliance on energy imports.
This article is part of “Economic Pulse of the Americas,” a series of explainers about the overlooked economic and trade trends in Latin America and the Caribbean, written by the Atlantic Council’s Adrienne Arsht Latin America Center. To get notified about future editions and other related work on the region, sign up here.
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