Jorge Arbache is a professor of economics at the University of Brasília and a senior fellow at iCS and Fundação Dom Cabral. He previously served as Brazil’s vice minister of planning and chief economist at the Ministry of Planning and was vice president for the private sector at the Development Bank of Latin America and the Caribbean. He has also held positions at BNDES and the World Bank.
Recent geopolitical tensions—from the war in Ukraine to the growing rivalry between the United States and China—have profoundly altered the global energy landscape. For Europe, this reality is already tangible: higher gas prices, the urgency of diversifying suppliers, and the need to rethink energy security have moved to the center of the economic debate. What was once a sector-specific issue has become a structural determinant of competitiveness, industrial policy and macroeconomic stability.
In this new environment, marked by supply shocks, price volatility and persistent logistical risks, diversification has become an organizing principle. Diversifying energy sources, suppliers and technologies is no longer an option but a necessary condition for reducing vulnerabilities. It is precisely within this transformation that a strategic opportunity for Latin America emerges.
The region possesses an unusual combination of assets. On the one hand, it has a relatively diversified energy mix, with a high share of renewable sources in several countries. On the other, it benefits from abundant natural resources, favorable geographical conditions and a relatively stable geopolitical position. In a world where risk has become more costly, these characteristics are acquiring increasing economic value.
The first area in which Latin America can benefit is the shift toward diversified energy sources. Dependence on fossil fuels concentrated in unstable regions has proved to be a structural risk. In response, countries and companies are broadening their energy portfolios to include not only oil and gas but also renewable energy, bioenergy and synthetic fuels. In this context, Latin America offers not only resources but diversity, scale and complementarity.
The second area is the geographical diversification of supply. Recent experience has demonstrated that the origin of energy matters as much as its price. The incorporation of geopolitical risk premiums into energy markets reflects this new reality. Latin America, relatively distant from the world’s major conflict zones, benefits from a form of geopolitical insulation that enhances its attractiveness for long-term investment and stable contracts. For economies such as those of Europe, this represents an increasingly attractive alternative in the pursuit of energy security.
The third element is the growing competitiveness of renewable energy. The sustained decline in the costs of solar and wind power has transformed the cost structure of the global energy sector. As carbon prices rise, environmental regulations become stricter and geopolitical tensions persist, this advantage is likely to widen. Latin America has some of the world’s most favorable natural conditions for producing clean energy, enabling it to generate electricity at very low marginal costs. This has direct implications for where energy-intensive industries choose to locate.
Beyond energy itself, the region can offer an integrated set of solutions linked to the energy transition. Latin America holds a significant share of the critical minerals required for clean technologies, including lithium, copper and nickel. It also has extensive experience in biofuels and the potential to develop new value chains in sustainable fuels, such as sustainable aviation fuel, or SAF, e-methanol and low-emissions hydrogen. This combination of assets allows the region to participate in multiple segments of global value chains.
In this context, the concept of powershoring becomes particularly relevant: the relocation of energy-intensive industrial activities to regions where energy is abundant, affordable and clean. Rather than limiting itself to exporting resources, Latin America can attract investment in sectors such as green steel, aluminum, fertilizers and chemicals. For countries facing energy constraints, this represents a way to secure strategic supplies; for Latin America, it is an opportunity to advance industrialization and create skilled jobs.
However, these opportunities will not materialize automatically. They require clear and consistent strategies. First, it is essential to recognize the economic value of the region’s assets—energy, natural resources and geopolitical stability—and to design policies that enable those advantages to be deployed effectively. This means moving beyond traditional models of specialization toward greater integration among energy, industry and trade.
Second, improving the investment environment is critical. Energy and industrial projects are capital-intensive and depend on regulatory predictability, legal certainty and macroeconomic stability. In a context of global competition for investment, these factors are decisive.
Third, it is necessary to strengthen the foundations that make this transformation possible: logistics infrastructure, transmission grids, energy storage, human capital and technological capabilities. Without these elements, the region’s potential is unlikely to translate into concrete economic results.
Finally, the region’s geopolitical positioning is becoming increasingly important. In a more fragmented world, the ability to maintain a pragmatic and relatively nonaligned stance can become a significant economic advantage. Relative neutrality allows countries to diversify partners, reduce risks and enhance their attractiveness to different economic blocs. Abandoning this asset in favor of rigid alignments could impose substantial costs.
Geopolitical tensions are redefining comparative advantages on a global scale. In this process, energy, geography and risk have come to play a central role. By combining abundant resources, energy diversity and relative stability, Latin America finds itself in a uniquely favorable position. Whether it capitalizes on that position will depend less on geology than on policy, investment and political resolve. The opportunity is real. Turning it into lasting prosperity is the harder task.
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