When oil becomes a weapon: The economic impact of an escalation with Iran on the World and on Mexico

On the global geopolitical chessboard, few variables react as swiftly as oil. When tensions escalate in the Middle East (particularly when they involve Iran) the energy market is no longer purely an economic arena and becomes a barometer of risk. The price of crude oil reflects not only supply and demand but also incorporates uncertainty, expectations, and potential conflict scenarios.

A probabilistic simulation based on thousands of possible oil price trajectories makes it possible to gauge this risk. The result is clear: even without a permanent disruption, the mere possibility of escalation introduces significant volatility. In the scenario analyzed, the price starts at $85 per barrel and converges, on average, toward levels near $78–$80 by the end of the year. Yet that average conceals what truly matters: the range of outcomes is wide, with scenarios ranging from levels close to $56 per barrel to extreme episodes above $110, and even tails exceeding $170 in unlikely but possible situations.

This behavior reflects a central feature of energy conflicts: a physical disruption does not need to occur for the market to react. It is enough that the risk to critical routes (such as the Strait of Hormuz) increases for prices to incorporate a geopolitical premium.

Figure 1. Probabilistic Oil Market Outlook

and Sensitivity to the Federal Budget

Figure 1 shows that the central price scenario is relatively stable, but surrounded by considerable dispersion. In other words, the market does not anticipate a permanent shock, but it does recognize that extreme episodes become more likely in contexts of tension.

Mexico: Average Benefit, Real Risk

For Mexico, the impact of an oil price increase is ambiguous. On one hand, higher prices generate additional revenue for the public sector. On the other, the country remains dependent on imports of refined fuels, which drives up domestic costs and puts pressure on public finances.

The simulation results capture this duality. On average, the fiscal impact is positive: the cumulative balance shows gains in most scenarios. However, this outcome comes with a key figure for decision-makers: there is roughly a 13% probability that the net effect will be negative by the end of the year.

Moreover, nearly 31% of scenarios end with prices below the budgeted level (Figure 2), implying concrete risks for fiscal planning. In other words, even in an environment where oil may rise, uncertainty over its trajectory limits the ability to anticipate revenues. In practical terms, this means that fiscal policy faces an environment where revenues may, on average, be favorable yet difficult to forecast.

Figure 2. Fiscal Vulnerability Dynamics Amid

Energy Market Volatility

Beyond Price: The Real Channel Is Uncertainty

The main effect of an escalation with Iran lies not merely in the level of oil prices, but in their volatility. In this exercise, geopolitical events are infrequent yet generate abrupt movements, resulting in asymmetric distributions: many moderate scenarios, along with a few, yet significant, extreme ones.

This dynamic carries direct implications. Globally, it acts as a supply shock that pressures inflation and complicates monetary policy. Domestically, it introduces caution into investment decisions, raises risk premiums, and complicates fiscal planning.

For Mexico, the message is clear: oil may offer a window of temporary relief, but it also represents a source of vulnerability. The real risk is not whether the price rises or falls, but the uncertainty over how long that movement will last and how sustained it will prove.

In an environment where oil becomes a geopolitical instrument, the key lies not in predicting the price, but in designing policies capable of withstanding volatile scenarios. Because in conflicts of this kind, uncertainty is not an additional risk — it is the baseline.