Mexico - April 2026

Despite being a major producer of crude oil, Mexico’s President Claudia Sheinbaum has been forced to take concerted action to cushion the blow from surging international energy prices caused by the conflict in the Middle East. Resorting to a mix of fiscal relief and administrative pressure on fuel retailers, Sheinbaum is attempting a delicate balancing act to shield Mexican consumers from inflationary pressures at the same time as maintaining fiscal discipline, complicated by the fact that Mexico imports more than half of the gasoline and diesel it consumes domestically.

Inflation is the most immediate threat posed by rising oil prices, given the impact on the price of retail fuel. Transport costs represent an important component of the national consumer price index (INPC), with rising diesel and gasoline prices pushing up the cost of transporting basic foodstuffs, disproportionately affecting lower-income sectors. 

Pricier agricultural products pushed the INPC up by 4.63% year-on-year in the first half of March, compared to 3.67% for the same period in 2025, exceeding both market estimates and the central bank (Banxico)’s target of around 3%, although within the +/- 1% tolerance range. Officials are now analysing temporarily including three staples of the Mexican diet – limes, tomatoes, and chicken – in the Pacic (Paquete Contra la Inflación y la Carestía) anti-inflation programme, an agreement between the government and the private sector to ensure affordable prices for basic goods.

But Sheinbaum has stressed that it is even more important to prevent an increase in the price of diesel itself. As a result, authorities are attempting to keep the cost of diesel down in particular, criticising distributors for pushing prices up too high given that they receive tax relief from the special tax on production and services, known as IEPS, which acts as a buffer against bigger fuel price rises.

Denying that the government was controlling prices, Sheinbaum said that distributors would not be permitted to take advantage of the global situation to hike prices: “Despite receiving support from the IEPS, gas station owners have significantly increased the price of diesel. We spoke with them, and a voluntary price cap was agreed upon, as always not forced, at around M$28.50 [US$1.63 per litre]. I told them: ‘It’s still very high, we have to keep lowering it’,” she said, underlining the importance of keeping pump prices down to prevent inflation from spiralling. 

After diesel prices rose above M$30 per litre at some service stations in March, fuel retailers agreed not to increase diesel prices and to extend a voluntary cap on fuel prices. Sheinbaum argued that if the government had not reduced the IEPS fuel levy, diesel prices would be around M$35 per litre. From early 2025, most filling stations limited the price of regular gasoline to M$24 per litre. 

In addition, the government has also introduced a package of tax incentives aimed at upgrading Mexico’s ageing freight and passenger transport fleet, with an average vehicle age of around 19 years. Aimed at buses, cargo trucks, and tractor-trailers – which have been under pressure due to rising freight rates, insurance premiums, and crime – the plan includes tax deductions for the purchase of new vehicles, better safety standards, easier financing options, and updated import prices. More than 80% of goods in Mexico are transported by road. “In addition to increasing the production of commercial ‌vehicles, this will help us reduce pollutants ‌and improve freight transport conditions,” said Sheinbaum.

While providing tax relief through the IEPS keeps the social peace and anchors inflation, it represents a significant hit to the federal budget, reducing the funds available for other social programmes. But Mexico’s Finance Minister Edgar Amador insisted in a recent interview with Bloomberg that the fiscal effects from rising oil prices will be neutral, arguing that the country will be able to accommodate any adverse impacts. 

“We are estimating that we are going to be able to more or less offset the impact on the fiscal side…We would be more concerned if this turns out to be more prolonged and the effects on prices will be more long lasting,” Amador told Bloomberg TV on 20 March. “Not every increase in energy prices of the international markets would be passed through to domestic consumers,” he added. “We would have a relatively neutral and balanced effect from our domestic front.” Furthermore, the strength of the Mexican peso over the last 12 months – appreciating by more than 12% against the dollar – will mitigate any recent weakening due to the energy crisis, he said.

Economists at Bank of America agree that Mexico’s economy remains largely neutral to higher oil prices caused by the Iran conflict. Although Mexico has been a net oil importer for several years, causing higher oil prices to have a slightly negative impact on the trade balance and growth, inflation will have a relatively limited effect due to the government’s caps on gasoline prices, typically using additional oil revenues to finance the subsidy and cushioning the fiscal blow.

At XP Investments, a Brazilian investment management company, analysts arrived at a similar conclusion, stating that the net impact of the shock is close to neutral on Mexico’s external accounts. The analysts point to the fact that Mexico imported around 337,000 barrels per day (bpd) of gasoline in 2025, while exporting slightly more at about 343,000 bpd. Although Mexico did in fact record a negative oil trade balance in 2025, because of unfavourable crack spreads and natural gas imports, the overall impact of higher oil prices is “negligible”.

• Natural gas

In order to reduce reliance on natural gas imports, President Sheinbaum has announced that Mexico will look into exploiting unconventional gas reserves. She said an environmental committee would be set up to look for a sustainable way of exploiting the reserves and to decide whether it is feasible. While Sheinbaum avoided the term, such deposits are typically accessed by fracking. Mexico currently imports 75% of the natural gas it consumes, with this all coming from the US. According to Pemex CEO Víctor Rodríguez Padilla, Mexico has the potential for production of 83.14bn cubic feet in conventional fields and of 141.49bn cubic feet in unconventional fields.

From a fiscal perspective, XP argues that higher oil prices are supportive, since additional revenues due to higher oil prices would reach US$13bn, equivalent to 0.7% of GDP, if oil remained at current prices, providing “ample room” for the government to offset revenue losses from fuel tax adjustments, particularly through the IEPS. “Inflationary effects are also minimal,” the analysts at XP continue, because the IEPS, which represents about 25% of the final retail gasoline price, allows the government to cushion the shock without affecting consumer prices. 

In sum, the analysts said that Mexico “stands out” compared to other countries in the region for its “relative insulation from the [oil price] shock…with neutral external effects, supportive fiscal dynamics, and limited inflationary consequences under current price levels”. Indeed, in recent weeks other countries in the region have also announced measures in the face of rising fuel prices. While Brazil has opted for subsidies and price-capping measures similar to those implemented in Mexico, many of the region’s other largest economies are risking political backlash in a bid to protect fiscal health.

Brazil

In Brazil, which like Mexico is another major oil exporter, the government has more room for manoeuvre than most other countries in the region. Although inflation in early March well exceeded analysts’ expectations, and rising fertiliser costs will hit farmers, higher oil and food prices benefit commodity exporting sectors, while Brazil’s significant biofuels sector provides additional fuel options. But with about a quarter of domestic diesel demand met through imports, President Luiz Inácio Lula da Silva took an aggressive approach early on by cutting taxes on diesel imports to keep fuel prices in check – an especially sensitive issue given that this is an election year – as well as introducing subsidies for producers and importers to contain prices. Meanwhile, state-controlled oil company Petrobras, the region’s largest oil producer, has sharply increased production at its domestic refineries, as well as contributing to a bid to keep inflation down by selling fuel below international prices. That has led to a sharp drop in diesel imports, raising concerns of shortages, with analysts warning that inventories could be exhausted within as little as three months.

Argentina

In Argentina – as in other countries in the region with right-wing governments like Chile, Costa Rica, Ecuador, El Salvador, and Honduras – the crisis has put the brakes on President Javier Milei’s momentum and weakened his political capital following his victory in midterm elections late last year. Having slashed massive fuel subsidies after taking office in 2023, fuel prices have risen significantly since then. They reportedly climbed another 15% during March, prompting the government to loosen ethanol blending rules to reduce the volatile oil component, and suspend a fuel tax increase due to take effect in April. The crisis is also putting Milei’s core promise to quash inflation in jeopardy, given that it is still running at around 33% annually. On the bright side, higher oil prices could speed up capital expenditure in Argentina’s Vaca Muerta shale field.

Colombia

With presidential elections approaching in Colombia this year, rising inflation threatens to undermine the governing coalition’s chances of winning. Like many right-wing leaders in the region, leftist President Gustavo Petro has questioned the fiscal sustainability of gasoline subsidies, implemented through the fuel price stabilisation fund (FEPC), leading the government to raise domestic gasoline prices in March as fiscal pressures mount. “Gasoline subsidies are no longer possible,” he said on 21 March. “As international prices go up, so will prices in Colombia.” Although at the cost of rising pressure on fuel subsidies and inflation management, oil-producing Colombia’s external accounts and fiscal revenues benefit from higher oil prices. Nevertheless, declining oil production in Colombia and the impact of rising fuel subsidy costs have given pause for thought. “While the government could opt to keep gasoline prices unchanged, doing so would imply a significant expansion of the deficit of the FEPC. As such, fuel pricing decisions remain primarily fiscal and political in nature,” according to analysts at XP.  

Chile

Higher oil prices are especially problematic for Chile’s small, open economy which relies heavily on imported oil, hitting the trade balance, inflation, and economic growth. The freshly inaugurated right-wing government of José Antonio Kast has initiated a sharp adjustment, prioritising fiscal health by passing on costs to consumers – inevitably causing discontent, a plunge in Kast’s approval ratings, and reviving uncomfortable memories of the 2019 social uprising triggered by an increase in Santiago metro fares. Authorities announced that fuel prices would jump from 26 March, given the inability of the fuel price stabilisation mechanism (Mepco) to soften the blow of an oil price shock for a prolonged period. Retail gasoline in Santiago is now set to rise by about 30% and diesel by as much as 60%. After excluding trucking unions from a package of temporary relief measures – including a fare freeze for public transport in cities, and a subsidy for taxi drivers – protests are gathering momentum, with Chileans reportedly now paying around 15% of the monthly minimum wage to fill a standard 50-litre tank.

Venezuela 

In contrast to the rest of Latin America, Venezuela stands to benefit significantly from the oil price shock. Although already battling with the highest inflation in the world, at around 600% annually, a jump in oil prices could help towards economic recovery in a country with enormous oil-producing potential. In addition, in a bid to stabilise the country and increase the international oil supply, the Trump administration is set to ease sanctions further on Venezuela’s oil sector, as well as issue more individual licenses and encourage foreign investment in Venezuelan oil more broadly.