Background on Key Figures and Relevance
The recent military operations initiated by Israel against Iranian military and nuclear facilities have sent shockwaves across the global market. These attacks, which began on Thursday and continued over the weekend, targeted Iran’s primary uranium enrichment sites and strategic locations, including Tehran. The strikes resulted in casualties, among them high-ranking officials of the Islamic Revolutionary Guard Corps.
Escalation and Global Impact
In response, Iran launched a wave of missiles and drones towards Tel Aviv and several northern Israeli cities, causing civilian casualties and prompting the closure of several countries’ airspaces in the region, including Israel, Iran, Iraq, and Jordan. The situation intensified further when an Iranian lawmaker threatened to close the Strait of Hormuz, through which nearly 20% of the world’s traded oil passes. Consequently, some petroleum exports to Europe were temporarily halted.
Immediate Consequences
- Oil Prices: The Brent crude oil price surged over 7% on Friday, accumulating a weekly increase of 11%, reaching levels unseen since 2023.
- Stock Markets: European, Asian, and U.S. stock markets fell between 1% and 2%.
- Gold: The price of gold increased by 3%.
- Currencies: Safe-haven currencies like the U.S. dollar, Japanese yen, and Swiss franc strengthened.
- Airline and Auto Industry Stocks: Shares of airlines such as Lufthansa, Air France-KLM, and United Airlines dropped between 3% and 5% due to rising fuel costs and travel restrictions. Similarly, auto manufacturers and shipping companies experienced declines due to expectations of a slowdown in global trade.
Mexico’s Situation
Mexico, like other emerging markets, experienced a slight weakening of its currency against the U.S. dollar amidst heightened global risk. The IPC, Mexico’s stock market index, also retreated.
However, the energy sector poses a significant concern. If Iran shuts down the Strait of Hormuz, oil prices will rise further, impacting Mexico due to its heavy reliance on imported gasoline from the U.S. This price hike will escalate transportation costs, distribution expenses for food, and industrial input prices, including fertilizers and petroleum derivatives. Companies will pass these increased costs to the end consumer.
Moreover, if the Mexican government attempts to control prices through subsidies, fiscal costs will also surge.
Vulnerable Nations: The Case of Mexico
The ongoing Middle East crisis represents a military conflict and new economic threat, as usual, affecting the most vulnerable nations. Mexico, with limited fiscal margins, dependency on energy imports, a weak currency, and high-interest rates, faces challenges. Despite its international reserves and relatively robust monetary policy, Mexico grapples with low growth, insufficient tax systems, high informal employment rates, and a government with ambitious spending plans but insufficient resources to fulfill them.
This situation underscores the urgent need for genuine tax reform, yet the current administration seems reluctant to confront the political costs of implementing necessary changes.
