Paul's Notes #9 — Political Risk Update: New Wolves, New Sheep?

Theme and Background

This chapter focuses on the impact of global political turmoil in 2026 on the natural resources industry, particularly the difficulty for energy markets to return to normalcy after the easing of the Iran conflict, and the profound significance of the rightward shift in Latin American presidential elections for mining investment. The report argues that while the Iran conflict dominates headlines, the election outcomes in Latin America are equally critical for the natural resources sector, yet the market has paid insufficient attention to them.

Core Thesis

The report argues that although Latin American presidential elections have generally tilted to the right, extremely narrow victory margins (e.g., 0.25% in Peru, 0.96% in Colombia) reflect heightened political polarization, and new governments actually lack strong popular mandates. This "structural political instability" presents both opportunities and risks for the natural resources industry: pro-mining agendas may accelerate project approvals, but opposition forces (especially in mining regions) and institutional obstacles (such as Peru's "permanent moral incapacity" impeachment clause) could persistently create resistance. A counterintuitive judgment is that investors often view shortened presidential terms in Peru as "cyclical noise," but the report cites analysts who argue this is actually a "structural feature" of the country's hybrid constitutional design, making it difficult for any president to govern long enough to implement policies.

Key Arguments and Data

Country	Election Outcome	Victory Margin	Parliamentary Seats	Key Policy Direction	Risk Factors
Peru	Keiko Fujimori wins	0.25%	41 of 130 seats in the Chamber of Deputies, 22 of 60 seats in the Senate	Pro-mining agenda, advancing a project pipeline of approximately $63 billion; returning 40% of mining royalties to mining communities	Opposition candidate Sánchez advocates partial nationalization, higher taxes, and phasing out open-pit mining; slow decision-making mechanisms in mining communities
Colombia	Abelardo de la Espriella wins	0.96% (led by 673,000 votes in the first round, narrowed to 251,000 in the second)	No majority in either chamber	Restarting oil, gas, and mining; increasing royalties for social investment	Opposition candidate Cepeda continues former President Petro's anti-extractivism stance; needs to build consensus in Congress

• Mining accounts for approximately 60% of Peru's exports and about 10% of its GDP, with copper dominating the project pipeline.
• Peru has had eight presidents since the end of Ollanta Humala's term in 2016, none of whom completed a full term.
• Although former Colombian President Petro publicly opposed extractivism, his government still approved projects including an open-pit copper mine and relied on natural resource royalties to sustain operations.

Companies/Assets Involved

• NG Energy International (Non-Executive Chairman Keith Hill): As a seminar guest, the company has projects in Latin America and is directly affected by the political environment.
• AMI (Co-Head of Mining Practice Sebastian Perez-Ferreiro): Provided analysis of Peru's political structure, emphasizing that short presidential terms are a structural feature rather than cyclical noise.
• The report does not directly name specific mining companies but implies that firms with copper, oil, gas, and coal projects in Peru and Colombia will be impacted by new policies.

Investment Implications

• Peru: Fujimori's fast-track approvals and community benefit-sharing plan (returning 40% of royalties) may provide short-term tailwinds for copper projects, but investors should be wary of persistent obstruction from mining community opposition (Sánchez supporters) and political uncertainty from the "permanent moral incapacity" impeachment clause. It is advisable to focus on projects that already have community support or are in advanced development stages.
• Colombia: De la Espriella's policy to restart oil, gas, and mining may improve the industry environment, but the lack of a congressional majority means policy progress will be slow. Investors should assess whether projects rely on permits already approved by the previous government (e.g., open-pit copper mines) and monitor whether the new government can maintain cross-party consensus after the "honeymoon period."
• Overall: The rightward shift in Latin America is not a signal of "policy certainty." Extremely narrow victory margins mean that roughly half of voters oppose the new government's agenda, raising the risk of localized conflicts in mining regions. Investors must incorporate a political risk premium into valuations and prioritize companies with strong community relations and projects in politically stable areas.

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Theme and Background

This chapter focuses on Bolivia’s political rightward shift and its potential impact on the natural resources sector. The report notes that although right-wing candidate Rodrigo Paz won the October 2025 presidential election, ending the left-wing MAS party’s 20-year rule, the new government faces severe political turmoil and protests that significantly hinder mining reform progress. This case serves as a cautionary tale for other Latin American countries, such as Peru and Colombia, which also experience conflicts between resource extraction and rural communities.

Core Argument

The report’s central thesis is that the window of opportunity for Bolivia’s right-wing government to push forward natural resources sector reforms is extremely narrow and fraught with uncertainty. Although Paz intends to liberalize the mining industry, ongoing political crises—protests, roadblocks, and economic paralysis—push any substantive reforms further into the future. The counterintuitive point is that even with a change in regime, mining reform remains a lower political priority than maintaining stability, and promoting mining is not a vote-winner.

Key Arguments and Data

• Election Background: In the October 2025 general election, Rodrigo Paz defeated another right-wing candidate in the second round, marking the end of the left-wing MAS party’s 20-year rule.
• Extremely Short Political Honeymoon: The report noted in RIN #11 that Bolivia’s presidential honeymoon period is very brief, and Paz’s situation confirms this.
• State of Emergency in June 2026: Paz declared a national state of emergency and deployed the military to disperse anti-government protests and clear roadblocks. The protesters—farmers and indigenous groups—routinely use road blockades to cause shortages of fuel, food, and medicine, suffocating the economy.
• Predecessor’s Predicament: Former President Luis Arce (MAS party) also wanted to revive mining to address economic woes but never had the opportunity, as more urgent issues always took precedence, and promoting mining rarely wins votes.
• Policy Direction: Paz aims to liberalize the economy and dismantle the “culture of state handouts” that sustained the MAS party for 20 years.

Companies/Assets Involved

This chapter does not mention specific companies or assets, focusing instead on the systemic impact of the macro-political environment on the natural resources sector.

Investment Implications

1. Bolivia’s Mining Reform Not Feasible in the Short Term: Investors should expect the mining policy environment in Bolivia to remain highly unstable for at least the next one to two years, with any project progress potentially disrupted by social unrest.

2. Risk Contagion in Latin American Resource-Rich Countries: Rural opposition groups in Peru and Colombia also frequently employ similar roadblock protest tactics. Amid rising political polarization, these two countries, while full of potential over the next four years, may also face significant challenges. Investors must incorporate social conflict risk into valuation models.

3. Focus on Post-Election Policy Implementation Capacity: A change in regime alone is not a buy signal. The key is whether the new government can maintain order and implement reforms amid waves of protests. The Bolivia case shows that even a right-wing government may fail to deliver on mining promises due to social pressure.