The Conflict in Iran and Gas: A Strategic Alert for Mexico

The Conflict in Iran and Gas: A Strategic Alert for Mexico

Author: Daniela Muñoz · Energy Analysis · March 13

For decision-makers in the energy, industrial, and investment sectors in Mexico, the recent escalation of the conflict between Iran and Israel should not be interpreted as a distant geopolitical event. This is a direct operational alert about the structural vulnerability of Mexico's energy model. The reason is concrete: any disruption in the Strait of Hormuz, through which approximately 20-30% of global liquefied natural gas (LNG) transits, triggers a chain of effects that ends up impacting the costs of electricity generation in Mexico.

The Structural Problem: A Designed Dependence

Mexico imports approximately 6.6 billion cubic feet per day of natural gas from the United States, covering close to 70% of its national consumption. Between 58% and 60% of the country's electricity is generated from natural gas. This is not a circumstantial dependence, but an energy architecture deliberately constructed, built over decades of insufficient investment in national production and source diversification.

The link to Iran is indirect but powerful. The United States is today the world's leading LNG exporter. If a conflict at Hormuz restricts global gas supply (especially that coming from Qatar, the world's second-largest LNG exporter), international demand is redirected toward U.S. gas. This increase in demand pushes up prices at the Henry Hub, the benchmark index to which many Mexican import contracts are indexed.

Implications for Industry and the Energy Sector

The first impact is a direct increase in the cost of electricity generation. If natural gas prices rise between 15% and 40% (moderate and severe scenarios according to market analysis), the variable cost of combined-cycle plants, which are the backbone of the Mexican electricity system, spikes proportionally. This translates to higher industrial tariffs, reduced operational margins for the manufacturing sector, and additional pressure on CFE's finances.

The second impact is on nearshoring competitiveness. Mexico has attracted foreign direct investment (FDI) under the premise of competitive energy costs and proximity to the U.S. market. A shock in gas prices, even if temporary, sends a risk signal to investors comparing Mexico with other destinations.

The third impact is fiscal. CFE operates with cross-subsidies and transfers from the federal government. A sustained increase in the cost of primary fuel widens the company's operating deficit and pressures public spending.

Implementation Route: Concrete Actions

Diversification of Sources: Accelerate the integration of renewable energy (solar and wind) not as an environmental objective, but as financial coverage against gas volatility. Each renewable MWh displaces imported gas.

Strategic Storage: Develop natural gas storage capacity on Mexican territory to cushion short-term price shocks.

Financial Coverage: Large industries and CFE must implement hedging instruments on natural gas prices, similar to what Pemex does with oil.

Industrial Energy Efficiency: Reduce the energy intensity of the manufacturing sector through efficiency and cogeneration programs.

Risks and Mitigation

The main risk of not acting is being exposed to an event that the market is already partially discounting. Mitigation is not eliminating gas dependence overnight (impossible), but building layers of resilience: diversification, storage, hedging, and efficiency.

Closing

The 2026-2030 horizon is clear: geopolitical volatility will be the norm, not the exception. Mexico needs to transition from a reactive energy model to one that actively manages its exposure to commodity risk. The conflict in Iran is the most recent reminder, but it will not be the last.

Sources: Le Monde, The Guardian, Mexico Business News, Global Energy México, El País, CFEnergía.