THE REGIONAL WINNER OF THE WAR IN IRAN IS LATIN AMERICA - Filenews 14/3
By Juan Pablo Spinetto
With the world worried about the risks of an oil price crisis, Latin America is actually poised to strengthen its geopolitical position. If it wants to take advantage of this moment, it must strengthen its collective bargaining power, put aside its ideological divisions and strengthen its domestic politics, particularly on crime and insecurity.
According to a recent report by Goldman Sachs, Latin America is one of the few regions in the world where the sustained increase in oil prices could translate into stronger economic growth. Of course, the impact will not be uniform: large net exporters, such as Brazil, Guyana or Colombia, will benefit much more than large fuel and gas importers, such as Mexico or Chile. Pressures on food and gasoline prices could even cause social unrest and force governments to extend subsidies amid fiscal constraints. And certainly, a world of heightened financial instability is rarely conducive to emerging markets.
However, the conflict comes at a time when Latin America's macroeconomic fundamentals are much more resilient than in previous decades. Inflation has largely returned to low single-digit levels and is expected to be only marginally affected by rising crude oil prices. Labour markets remain stable and central banks hold significant international reserves amid strong investor confidence and prudent monetary policy. The depreciation suffered by Latin American currencies in recent days as tensions escalated only negate a small part of the significant gains recorded over the past year. Even Argentina, historically the weakest link in times of global instability but now a net energy exporter, is expected to receive an injection of hard currency from the current spike in oil prices and higher agricultural prices. Its fiscal surplus also gives the government an economic cushion that it did not have just a few years ago.
More broadly, the dramatic images of missiles targeting various Gulf countries—a reminder of the conflict in Europe following Russia's invasion of Ukraine in 2022—highlight Latin America's enduring value as a region that is relatively peaceful, strategically geographical, and resource-rich. This continent of about 670 million people, already at the center of great power competition, is becoming even more important for trading partners looking for essential commodities, for multinationals looking to create shorter and more reliable supply chains to the U.S., and for institutional investors looking for the next generation of big projects to finance.
Think of it in terms of real estate: If the world were a conflict-ridden metropolis, Latin America's relatively quiet and isolated neighbourhood would suddenly rise in value. And that's before we even consider more extreme scenarios (in the event of a World War III, you'll probably find me somewhere in Mendoza). Proof of this beneficial isolation is the minimal disruptions to the supply chain and airspace that the region has experienced, so far, during the conflict with Iran.
However, Latin American policymakers and analysts should carefully weigh the merits of their neighbourhood. The region has previously missed opportunities that seemed impossible to miss, from the wave of post-Soviet economic globalization to the commodity super-cycle of the early 2000s. The key to avoiding another missed opportunity requires collective thinking about the value of Latin America as a whole. Instead of getting caught up in a polarizing left-right divide, governments should work realistically to increase the value of their common neighbourhood by boosting intra-regional trade, interconnecting energy markets, building shared infrastructure, and strengthening democratic institutions.
Yes, maintaining close ties with the U.S. is important. There are many common threats and opportunities, including cooperation against organized crime and drug trafficking, which is perhaps the most urgent concern of voters in Latin America today. U.S.-led political changes in Venezuela and the possibility of a transition to Cuba could also open up space for more practical leaderships.
However, regional leaders should not be naïve or overly gullible: Washington will, understandably, pursue its own interests in what it sees as its sphere of influence, and those interests do not necessarily align with those of Latin American states, particularly with a White House that is changing its mind so quickly today. The "Shield of the Americas" summit hosted by Donald Trump at his golf course near Miami over the weekend was a clumsy attempt to divide the region into friends and foes. As tempting as ideological "purity" may be, any regional effort that excludes Brazil, Mexico and Colombia is doomed to fail and ultimately weakens Latin America's strategic card.
The political shift to the right may indeed produce more investment-friendly policies—what Morgan Stanley recently described as a Latin American "spring." But complete ideological alignment in more than 30 countries is a chimera. Real convergence should revolve around something simpler: the enlargement of the region's economic pie through dialogue and cooperation.
In addition, the U.S. confrontation with Iran may soon reduce the attention Washington has paid to Latin America. And although the U.S. is pushing to curb China's influence, Trump himself heads to Beijing next month with a long list of unfinished bilateral affairs. Latin American leaders should wake up and realize the reality of realpolitik: Interests, especially among neighbours, must take precedence over ideology.
Latin America's current momentum may not last long. Francisco de Santibáñez, president of the Buenos Aires-based think tank CARI, warns that as the U.S.-China rivalry deepens, it will become increasingly difficult for the region to balance economic and geopolitical interests. "Today we can implement this strategy and it works. My concern is the evolution of the US-China confrontation in three or four years," he told me. "Beyond the differences, there must be an agreement that Latin America remains a place of peace. And for that, diplomacy is key."
In an increasingly fragmented and dangerous world, Latin America holds pretty good leaves. This time, he will have to play them wisely.
Adaptation – Editing: Lydia Roubopoulou
