By Lucinda Elliott and Eliana Raszewski
MONTEVIDEO/BUENOS AIRES, April 2 (Reuters) - The global surge in fuel prices is exposing how unevenly South America is positioned to absorb the shock, with Argentina’s radical free‑market experiment under President Javier Milei facing particular pressure.
Among Argentina's neighbors, import‑dependent Chile has been among the hardest hit by fallout from the U.S.-Israeli conflict with Iran. Fuel prices there are set to jump as much as 30% for gasoline and 60% for diesel
after the government was forced to unwind its price‑stabilization scheme, citing strained public finances.
In Brazil, state-run energy firm Petrobras this week raised jet fuel prices by about 55%. Central bank officials have warned that the oil shock could weigh on inflation even as Brazil’s status as a net oil exporter offers some cushion.
Peru has also felt the strain, with inflation spiking in March amid higher fuel prices and domestic supply disruptions. Uruguay stands out as an exception, according to a Citi analysis, due to its providing fewer direct energy subsidies and having adequate international reserves.
The price surge is hitting Argentines' transport, food and household costs, undermining Milei's argument that he is winning a fight with what had been runaway inflation through deep spending cuts and deregulation.
“Prices are up and salaries stay very low,” said Agustin Pecora, a construction worker on a railway project in Buenos Aires province.
SHOCK HITS AT 'WORST POSSIBLE MOMENT'
In what has been posing a challenge to Milei's inflation-slayer narrative, monthly inflation has stalled near 3% for nine months, or about 33% annually, and private forecasters were already raising 2026 estimates before crude prices surged in February.
“The Iran shock has arrived at the worst possible moment for Milei’s counter‑inflation program,” said Mariano Machado, Americas analyst at Verisk Maplecroft.
Gasoline prices in Argentina are up about 15% on average since late February, according to energy analyst Fernando Bazan at consultancy Abeceb, putting Milei’s goal of pushing monthly inflation below 1% by mid‑year increasingly out of reach.
Over the past week, officials have relaxed gasoline quality standards and postponed a tax hike on fuel, though Bazan said the impact will be limited.
An Argentine government source told Reuters that no further measures were being contemplated and energy subsidies must remain capped at 0.5% of GDP this year to meet fiscal targets.
At the center of the dilemma is state energy firm YPF, which dominates Argentina’s fuel market and has so far raised prices more cautiously than global benchmarks.
“If oil is at $120 or $150 per barrel, then YPF’s shareholders will pressure management to maximize returns,” said financial advisor Paula Bujia.
Despite repeated assurances that price pressures would be transitory, YPF late on Wednesday introduced a 45‑day buffer on gasoline prices, aiming to shield households from volatility in global markets.
"During this period, YPF will not pass on the impact of new fluctuations in Brent prices to consumers," Chief Executive Horacio Marin told local media, adding that the measure was "not a price cap" and prices would remain constant.
Argentina’s position is structurally stronger than a decade ago. Development of the Vaca Muerta shale formation has turned a nearly $7 billion energy deficit in 2013 into a surplus. Still, the country remains reliant on natural gas imports during peak winter demand, which begins in June.
The experience elsewhere in the region underscores the political risks Milei faces. Fuel hikes in Chile have already triggered protests, denting the popularity of freshly inaugurated President Jose Antonio Kast.
“A fuel price shock impacts an electorate lacking financial leeway, turning economic discomfort into a political grievance,” Machado said – one that could "provide the glue" for Argentina’s fragmented opposition ahead of the 2027 presidential race.
(Reporting by Lucinda Elliott and Eliana Raszewski in Buenos Aires; Additional reporting by Marianna Parraga in Houston, Oliver Griffin in Sao Paulo, and Rodrigo Campos in New York; Editing by Cassandra Garrison, Christian Plumb and Daniel Wallis)
