New Mexico gains $59 million in oil revenue for every $1 increase in barrel price amid Iran conflict

(SeaPRwire) –   The global oil supply crunch in the Strait of Hormuz has created a coveted yet politically delicate financial boon halfway across the globe in New Mexico, an uncommon Democratic-led state where fossil fuels form the foundation of progressive social programs.

New Mexico is the second-largest oil producer in the U.S. after Texas, and its revenue from taxes, royalties, and lease sales supports expenses like college tuition, all school meals, health insurance, and a new free universal childcare program.

With oil prices spiking due to the Iran conflict, funds are pouring into the state’s coffers, putting Democrats in a tricky spot—they oppose the war and aim to cut dependence on fossil fuels.

“It’s hard for people to think about, ‘Oh great, we have this windfall,’ and children are getting killed on the other side of the world,” said Deb Haaland, the ex-U.S. Interior Secretary who’s campaigning for governor.

Haaland is one of two Democrats vying to replace Gov. Michelle Lujan Grisham, who’s finishing her second term. A former congresswoman and state party chair, Haaland pushed to restrict unregulated oil and gas drilling during her time in President Joe Biden’s administration.

Now, she plans to use the energy boom’s proceeds to raise New Mexico’s child tax credit and enhance the refundable working families tax credit—payments that would help low-income individuals the most.

“We have obligations to try to have a better world overall,” remarked Haaland, a Laguna Pueblo member who could make history as the U.S.’s first female Native American governor. “I think we can do that.”

Sam Bregman, the Albuquerque-based District Attorney and Haaland’s opponent for the Democratic nomination, said he intends to counter inflation by giving one-time $500 state checks to residents earning under $200,000 annually. He also wants to eliminate personal income taxes for residents aged 65 and above.

“It is the resources of the people that’s generating that revenue,” he said. “We ought to give it back to the people.”

Each $1 change in the average annual oil price leads to an approximate $59 million shift in New Mexico’s state revenue.

This translates to an expected $850 million jump in the state’s annual income just for the budget year ending in June, driven by wartime price hikes—equal to 12% of the annual general fund expenditure, per the state Legislature’s budget and accountability office.

New Mexico transports most of its dense crude oil from its section of the Permian Basin to Texas distribution centers and Gulf Coast refineries. Prices may stay elevated as the war shows no signs of ending, even with a tenuous ceasefire.

A reserve fund that eases oil dependence

In New Mexico, oil revenue spikes are automatically deposited into a set of trust funds aimed at slowly lessening the state’s fossil fuel dependence. These funds help generate investment income to fund Medicaid, early childhood education, infrastructure projects, and expanded mental health services.

This approach has eased the unease many Democrats feel about relying on oil revenue, especially in a state with deep-rooted pockets of extreme poverty and the country’s highest Medicaid enrollment rate.

“For New Mexico and New Mexicans and especially the progressive left — which sort of controls the state — it’s always something they really don’t want to admit or talk about or get angry about,” said Lonna Atkeson, a political science professor who has studied voting patterns in New Mexico and leads the LeRoy Collins Institute at Florida State University. “Like, ‘We should not be funding our stuff with that money.’ I’ve heard those arguments.”

Whoever wins this year’s gubernatorial race will lead the state investment council, which manages around $68 billion in state reserves—including investments that offset K-12 public education costs.

New Mexico isn’t the only state profiting financially from the war. Alaska projects an extra $1.05 billion for the current fiscal year and the next one starting July 1.

“It really is this small group of energy-reliant states like North Dakota, Alaska, New Mexico and Wyoming that are going be affected most directly,” stated Justin Theal, a senior officer at The Pew Charitable Trusts who studies state fiscal trends. He described the situation as “a double-edged sword.”

“It raises costs for households and businesses which can potentially dampen consumer spending and reduce sales taxes that almost every state relies on as well,” Theal said.

Wartime oil prices offer a bright side for New Mexico

Three Republican gubernatorial candidates are pushing for more robust tax cuts while oil prices are elevated.

“Republicans are using the ‘e-word’ — eliminate income taxes,” said Brian Sanderoff, an Albuquerque pollster and president of Research and Polling Inc. The last Republican to win a statewide office was in 2016.

Meanwhile, they’re doubting the financial viability of universal childcare.

The program is facing a direct legal challenge from Duke Rodriguez, a cannabis entrepreneur and Republican gubernatorial candidate. Rodriguez once served as human services secretary under former Gov. Gary Johnson—a proponent of limited government who ran unsuccessfully for president as a Libertarian.

The lawsuit claims Lujan Grisham rolled out the childcare program in November without the necessary legislative approval, even though supporting laws were passed this year. A court has ordered the administration to reply within 30 days.

Reflecting on the state’s oil income, Rodriguez says, “We don’t have a resource problem, what we have is a real results problem. We just spend and spend and spend with no accountability.”

Republican businessman Doug Turner views wartime oil prices as a chance to revamp the state’s tax code and wants to implement means testing for childcare benefits. He lost the 2010 Republican primary to then-district attorney Susana Martinez, who later served two terms as governor.

Gregg Hull, a former three-term mayor of Rio Rancho (a suburb of Albuquerque), wants New Mexico to become one of the states without a personal income tax—like Texas and Wyoming. Personal income taxes contribute around $2.2 billion annually to the state’s revenue, covering roughly a fifth of the annual general fund needs.

Hull stated he wants to expand the oil industry by directing budget surpluses toward infrastructure projects in the state’s primary oil-producing area.

“This morning, when I was looking at a price of a barrel of oil, I said, ‘Well, that’s not great for consumers, but it’s awesome for New Mexico,’” Hull said.

___

Associated Press reporter Becky Bohrer, based in Juneau, Alaska, contributed to this story.