Mexico wins on the crude side but is exposed on the fuels side. The fiscal dilemma for Mexico has no clean solution. The result is that the market for refined fuels, which under normal conditions is global and liquid, begins to fragment into national markets with restricted access. If the United States restricts the export of refined products to protect its own market, Mexico loses access to its main supplier just as alternative markets become scarce.
The global market shortage is not static; it grows with each week the strait remains closed. Governments have three limited levers to respond to this situation: releasing strategic reserves, obtaining more oil from alternative suppliers, and escorting ships. The country exports crude oil—the Mexican mix rises with Brent—and improves the revenues of Pemex and the Federal Treasury, an unexpected relief for a budget with a large deficit.
However, Mexico also imports about 400,000 barrels per day of gasoline and diesel, mostly from US refineries. Wood Mackenzie warns that Brent could reach $150 per barrel if the disruption extends for several weeks. With supply levers exhausted, governments have begun to move the only one left: protecting their domestic market by restricting exports. Every sustained $10 increase in the international price of refined products implies an additional subsidy cost via IEPS that sector analysts estimate between 15 and 20 billion pesos per quarter.
Allowing domestic prices to rise in line with the international market avoids this fiscal cost, but fuels inflation in a context where the peso is already facing pressure from trade uncertainty with the United States. The strategic reserves of the International Energy Agency total 1.2 billion barrels, but releasing them requires contracts, tenders, and time. On the other hand, US shale has technical flexibility, but its companies will not drill new wells until they confirm that high prices are permanent; their additional contribution would hardly exceed 300,000 barrels per day in a six-to-twelve-month horizon.
The crude oil shock is turning into a fuels shock, with a different and broader geography. It is precisely here that Mexico faces its most uncomfortable position. The pipelines that cross Saudi Arabia and the UAE can redirect a small fraction of the volume, but leave trapped in the Persian Gulf around 15 million barrels per day with no access to the global market.
To calibrate the magnitude: when Russia invaded Ukraine in 2022 and markets feared losing about 3 million barrels per day of Russian oil, Brent reached $128 per barrel. Iraq and Kuwait were already closing wells because their storage facilities did not have the capacity for the oil that could not leave. The UAE and Saudi Arabia were cutting production for the same reason. The only supplier with available volume immediately is Russia.
Washington issued a 30-day waiver on March 5 for India to buy Russian oil already at sea, a relief for Indian refineries that depend on the Gulf for half of their supply, but it is not a solution for the global market. And what the presidential announcement did not mention is that the most urgent problem was not the lack of escorts, but the saturation of the fields themselves.
There is no third option that avoids costs; only alternatives that distribute them differently between the treasury and the consumer. The strait remained closed. The current shortage is five times larger. Donald Trump announced on March 9 that the military operation was “practically over” and that the United States would escort ships through the strait. The markets responded with relief: Brent fell 8% in one day, from near $100 to $91 per barrel. It was a pause, not a solution.
The best combination of all these levers would generate only 4 million barrels per day, less than a third of the current shortage. According to available information, Iran has not deployed its maritime fleet to block the transit of tankers, but has used naval mines, drones, and, above all, the credible threat of attacking any ship that attempts to cross it. In a matter of days, commercial transit through the planet's most important maritime passage has been drastically reduced.
The assumption that the Strait of Hormuz would always remain open has been refuted, catching the global oil market by surprise. The Strait of Hormuz is a bottleneck through which 14% of the world's crude oil production—about 14 million barrels per day—transits, plus another 4 million barrels per day of refined products such as gasoline, diesel, and aviation fuel. No comparable-scale alternative exists.
China, the world's largest refiner, has already ordered its companies to suspend external sales of gasoline and diesel, driving up prices in Singapore, the main reference hub for Asia. India and the United States are evaluating similar measures. Since the start of the US and Israel military operation against Iran, the closure of the Strait of Hormuz has been the most calculated response from the regime of the ayatollahs.
