Latin America's Institutions Hold Key to Weathering Oil Shocks

The largest oil supply shock on record has left Latin America sorted in unexpected ways. When the Persian Gulf conflict closed the Strait of Hormuz in early 2026, regional economies did not respond uniformly. Instead, they fell into two distinct categories: those that turned the shock into investment and resilience, and those whose existing weaknesses deepened.

The dividing line is not determined by a country's natural resources but rather by the durability of its institutions. J.P. Morgan's analysis shows how countries with strong institutions were better equipped to handle the crisis. This is evident in Brazil, which captured the price spike directly and expanded its crude production, while Argentina also managed to convert its oil into export revenue.

In contrast, Mexico and Venezuela struggled due to their nationalistic policies and underinvested energy sectors. The region's dual-track transition, comprising a resilient hydrocarbon sector and a growing clean-energy one, was exposed by the shock through three channels: the windfall-versus-refined-trap divide, the fertilizer shock, and the green premium.

The lesson from this economic experiment is that institutional durability is the scarce input that governments can supply. This reframes the US and Latin American agenda from volumes to durability, with three key tasks: co-investing in shock-absorbing infrastructure, making rules bankable, and recognizing the prize of stability.