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U.S.-Iranian Conflict: Ramifications in Latin America

At the dawn of a new decade, people across the world stared at their screens in awe, watching the bright flames a destructive air strike had just left behind. They wondered whether these flames would spread to the entire world. 

The January 3 death of Iranian Major General Qassem Soleimani at the hands of the U.S. government and Tehran’s subsequent military retaliation brought a simmering pot of geopolitical tension dangerously close to its boiling point. While the risk of an outright U.S.-Iranian military conflict has significantly diminished, the recent crisis provides an opportunity to consider the far-reaching impacts of U.S. military action. Major catastrophes in one region almost inevitably affect all others in an increasingly interdependent world.

For instance, Latin America has historically been relatively disengaged from the great geopolitical struggles of the day. It was the only major world region that did not face combat on its territory as a result of either World War. Alongside Oceania, it is also the only region that has never developed a nuclear weapon, despite the passing of over seven decades since the U.S. and USSR inaugurated this arms race. Nonetheless, both World Wars and the Cold War had profound economic, political, and diplomatic effects on Latin America. Likewise, a U.S.-Iranian war would prove deeply transformative to the 640 million people south of the Río Grande. 

War and Oil Dependency

To see why, it is important to understand that Latin American economies tend to rely deeply on commodity exports, and are thus subject to fluctuations in the global prices of said commodities. In some cases, this is especially true of crude oil. Among the region’s eight largest economies, Venezuela stands out as the most oil-dependent, since almost nine percent  of its gross domestic product comes from their net crude oil exports—that is, the amount exported minus that imported. Neighboring Ecuador faces an analogous dependency ratio of about 5.4 percent, followed in turn by Colombia, Mexico, and Brazil, all significant oil exporters. While Peru and Chile are net importers of oil and therefore provide important exceptions, the broader regional picture is clear—an increase in the price of oil would inject millions of dollars into the regional economy, temporarily accelerating growth after almost a decade of stagnation. This is especially true for Venezuela, which has seen its per-capita income plummet to about two thirds of its 2012 levels by 2018

It stands to reason that a major military conflict between the U.S. and Iran would result in higher global oil prices, thus providing this temporary stimulus. Since 1970, every major surge in oil prices has been preceded by a conflict in said region, ranging from the Yom-Kippur War in 1973 to the Iranian Revolution from 1978-1979 and, more recently, the American invasion and occupation of Iraq from 2003-2011. 

However, the scope of the impact of an Iranian-American war would be difficult to conceptualize even in terms of past events. The Iranian Revolution, for instance, took place when crude oil prices were at a similar level to those of our present day, fluctuating approximately around the 60 dollar mark. In 1979, Iran’s oil exports constituted seven percent of the world’s total, and the disruption of these supplies resulting from the Revolution amounted to an increase in global oil prices up to about 110 dollars, almost double that of the period preceding it. While this was undoubtedly a massive shock, it would likely pale in comparison to that of a hypothetical Iranian-American war today. Given that Iran threatened to attack the United Arab Emirates and Israel in early January of 2020, it is not unreasonable to believe that this conflict could extend across the Persian Gulf, a waterway to which Iran, crucially, can restrict access by targeting the narrow Strait of Hormuz between it and the Indian Ocean. About 23 percent of the world’s crude oil exports leave countries whose only coastline is on the Persian Gulf, over three times the relative significance of Iran’s oil exports in 1979, meaning that, if those supplies are disrupted, we can reasonably anticipate a completely unprecedented increase in global oil prices.

While Latin America would seem, at first glance, to benefit from this, those benefits would likely prove ephemeral in most cases, instead leaving significant harms. The primary beneficiary of the U.S. intervention, Venezuela, remains governed by Nicolás Maduro’s United Socialist Party, which has consistently undermined investment in productive assets beyond the oil industry and rendered the country’s diversification impossible. This means that, absent an unlikely regime change in Venezuela, once oil prices returned to pre-war levels, the country would be just as economically vulnerable as it is today. While Colombia and Mexico have much more successfully enshrined economic models that encourage diverse growth, the increased value of their oil exports may inevitably hinder further long-term diversification by increasing the value of the Colombian and Mexican pesos, rendering their other exports more expensive and, therefore, less competitive abroad. Finally, Chile and Peru, both net importers of oil and among the fastest-growing economies in the region in the 2010s, would come under significant economic pressure, potentially stimulating already acute civil unrest in Chile and rendering these countries vulnerable to the rise of destructive political forces.

Ever Farther from the North, Ever Closer to the East

This scenario is further complicated by the potential for declining U.S. diplomatic influence in Latin America, opening new possibilities for a rising China. Historically, the reputation of the United States has tended to decline in Latin American countries whenever the U.S. was perceived to be waging an unreasonable foreign war. The Vietnam War, for instance, emboldened Chile’s Socialists and Christian Democrats to launch a mass anti-American protest movement in the late 1960s, paving the way for the election of Salvador Allende, a staunch opponent of U.S. influence in the region, one year later. Similarly, U.S. interventionism in Iraq and Afghanistan prompted widespread disapproval across the region. In both Mexico and Argentina, for instance, approval of the U.S. government declined by almost twenty percentage points. Meanwhile, Ecuador and Bolivia saw the rise of explicitly anti-American presidents between 2006 and 2007, and an emboldened Hugo Chávez of Venezuela led the charge against U.S. President Bush, calling him “a donkey” and “Mr. Danger”. This would all seem to indicate that a war against Iran would further tarnish the image of the U.S. in the eyes of its southern neighbors, politically emboldening those who seek to curtail its influence. 

It must also be noted that Chinese investment is growing rapidly across Latin America. The country invested almost $150 billion as of May 2019, a sum about 50 percent larger than the entire economy of Ecuador, and hopes to fund ambitious new projects in the coming decade, such as the new metro system of Bogotá, Colombia, set to use more steel than the recent expansion of the Panama Canal. Increased mistrust in U.S. institutions would curtail any American initiatives to regain their predominant economic position among their southern neighbors, while the costly burden of a war with Iran would further limit their financial ability to do so.

It seems, therefore, that a U.S.-Iranian war would have produced a Latin America that was generally less diplomatically aligned with the U.S., with a massive but largely unpredictable economic impact as a result of surging oil prices. Whatever the case would have been, it is important to remember the enormous scope and severity of U.S. action around the world, not only because of the potential immediate victims of any given conflict, but also because of the shockwaves that can unintentionally redefine entire regional landscapes thousands of miles away. This is the cautious mentality voters should demand of the next commander in chief as the 2020 elections draw closer.