Energy
Trump Tension with Iran to Fix Future Pump Prices
The price of crude had its third-biggest jump in history after the attack on the Saudi refinery - the implications for Mexico.

An attack on Saudi Arabia's oil refining facilities has the world on high alert with uncertainties abounding that have many questioning where this is all headed. The only certainties? Intervention on behalf of the United States and escalating tensions with Iran will factor heavily into determining an equation that equals constant volatility on the rise for the rest of 2019.

Donald Trump's comment following the attacks on the Saudi Aramco refinery caught some geopolitical specialists by surprise. "He showed caution, which is an about-face from his usual explosive reactions," said internationalist Luis Huacuja Acevedo, in conversation with LPO.

"He is weighing the pros and cons of more serious intervention," Huacuja added, who is also in charge of the UE-financed branch of UNAM (the Universidad Nacional Autónoma de México). And he isn't ruling that possibility out. "The United States has been in a complicated and delicate position, above all with Iran after having pulled out of the nuclear accord, but this also heightens conflict with Israel. It's a complicated cocktail that could turn Molotov, with numerous secondary casualties in the region."

AMLO celebrates Pemex's 7.5 bn in bonds placement: "Investors trust our nation"

The signs are still confusing. Relative calm led to Amin Nasser, CEO of the oil company to confirm that it would be possible to return to normal production at the end of the month after the attack halved production. Some specialists thought it could take months, but for analysts, it's still no guarantee that smooth sailing is around the corner.

"If this forecasted recovery stays on course, the jump in oil prices will be temporary, but the market will not rule out that more attacks could be on the horizon, which is why we haven't seen stronger improvement in prices," observed Marco Oviedo, chief economist for Barclays Latin America.

What is also key for the market is that we receive more information on those responsible for these attacks. Houthi militia operating out of Yemen claimed responsibility, but the United States pointed at Iran, complicating an already murky scene.

"Trump needs to look carefully at the numbers because this isn't just any world region and it is complicated even further by the proximity of other countries in the area. He'll have to analyze the pros and cons. But if he sees a benefit for himself, and with the elections on the doorstep, he could opt to intervene. It's all on the bargaining table now," said the internationalist expert.

This same expert underlines that for now, intervention on behalf of international organizations is not yet clear, and indicates that the European Union is at a sort of impasse where powerful positions are to be renewed in November.

Arturo Herrera, Secretary of Finance

Aftershock in Mexico

Although this all seems like a distant conflict in the Middle East, its escalation will have serious repercussions globally. To an already complicated scenario brought about by forecasts for reduced economic growth - which is not ruling out a recession - and commercial tension caused by China and the United States, now we are facing an oil crisis. "It would be like going back to the 1970s," says Huacuja.

Global tension also casts its effects on the GDP while rising oil prices yield a two-fold outcome: on one hand, they bring in more revenue to Pemex (the Mexican state-owned petroleum company) and to the Mexican Treasury Department. But since Mexico is also an export country, they imply more spending on fossil fuel as well as the need to adjust the IEPS (Special Tax on Products and Services) to stop oil prices from rising.

According to Oviedo, there will be an impact on funds to the tune of approximately US90 million in what's left of 2019 if this conflict continues. He rules out the significant impact on inflation since the government controls prices by way of the IEPS.

Ana Azuara, a commodities analyst at Banco Base, says if prices reach US65, gas will climb to 21.30 pesos per liter, which is when the Mexican Treasury Department will step in with the IEPS, which is a sort of subsidy that controls gas prices. The long-term toll will translate into less tax revenue for the public coffers.

But in light of this control mechanism, Oviedo considers that inflation will not be affected and therefore will not be a central factor at Banxico talks on monetary policies that are to take place on September 26. 

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