Hormuz shutdown elevates Latin American oil and lithium
Iran's closure of the Strait of Hormuz has spiked oil prices and forced Asian refiners to secure long-term supply contracts from Latin America's chokepoint-free oil and lithium reserves.
Iran’s Revolutionary Guard implemented "strict control" over the Strait of Hormuz on Saturday, effectively shuttering normal commercial traffic after the US Navy warned unescorted vessels faced extreme risk. The immediate market impact was severe, with tanker insurance rates tripling overnight and Brent crude spiking past $90 per barrel. The disruption threatens Asia, which relies on the chokepoint for 89 per cent of its crude imports.
For market participants, the crisis abruptly repriced geographic risk, turning Latin America from a secondary commodity play into a primary strategic hedge. With West African and North Sea crude unable to scale up overnight, Asian state refiners are urgently seeking long-term contracts for barrels that bypass Middle Eastern chokepoints entirely. This dynamic directly benefits assets with immediate spare capacity and direct Atlantic or Pacific access.
Brazil’s pre-salt reserves are the most immediate beneficiary. Petrobras produces highly competitive crude at break-even costs well below current prices, reaching global markets without traversing contested waters. Japanese, South Korean, and Indian state refiners are already in preliminary talks to accelerate contracted volumes and secure extended offtake agreements. The crisis also strengthens the political hand of Brazilian factions advocating for accelerated international development of the pre-salt.
Guyana’s Stabroek Block offers another immediate supply alternative. ExxonMobil’s offshore platforms are now producing over 600,000 barrels per day of light, low-sulphur crude ideal for complex Asian refineries. However, this strategic elevation brings acute geopolitical risk, as US Southern Command reframes its regional posture to defend this infrastructure. President Irfaan Ali faces the delicate task of managing a sudden influx of Asian state capital before institutional safeguards are fully established, while the Essequibo border dispute with Nicolás Maduro’s Venezuela gains a sharper edge.
The supply shock is simultaneously accelerating a parallel scramble for critical minerals. Argentina, where lithium production has surged past Chile’s under President Javier Milei, is seeing Asian state-backed firms fast-track due diligence on direct lithium extraction projects in the Salinas Grandes and Hombre Muerto basins. In Chile, President Gabriel Boric may leverage the sudden urgency to extract technology transfer and downstream processing commitments from established operators like SQM and Albemarle in the Atacama desert.
Venezuela highlights the limits of this regional pivot. Despite holding the planet’s largest proven oil reserves, US sanctions and PDVSA’s operational dysfunction keep the country largely isolated from the capital inflows seen by its neighbors. The Maduro government is expected to exploit the panic by offering discounted crude to desperate Asian buyers, testing the cohesion of the sanctions regime.
