Oil prices have climbed sharply since fighting erupted between the U.S., Israel and Iran. Tankers avoid the Strait of Hormuz. Global supplies tightened. And half a world away, New Mexico finds itself suddenly richer.
The state’s treasury swells with tax revenue, royalties and lease payments tied to crude output from its slice of the Permian Basin. For every dollar the average annual oil price rises, state government income swings by roughly $59 million. Recent war-driven changes point to an $850 million surge in the budget year ending in June. That equals 12 percent of annual general fund spending.
Fortune laid out the numbers and the politics in detail. The windfall arrives at an awkward moment. Democrats dominate state government. They have expanded social programs funded in part by fossil fuels. Yet many oppose the conflict that feeds the cash flow. “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, former U.S. interior secretary and current candidate for governor.
New Mexico pumps about 2.3 million barrels of crude daily. Only Texas produces more. In fiscal 2025 the state collected at least $7.3 billion from oil. The Wall Street Journal reported those figures and noted how such revenue helps close deficits, pay for early childhood education and repair roads across energy-dependent states.
But the money flows with strings. Surges pour into trust accounts meant to build investment income over time. That setup supports Medicaid, early education, infrastructure and mental health services while aiming to lessen long-term dependence on volatile commodity prices. The state investment council oversees a $68 billion nest egg that already offsets some K-12 education costs.
Gov. Michelle Lujan Grisham’s administration has used these funds to deliver free universal child care, cover college tuition for many residents, provide school meals and expand health insurance. New Mexico reports the nation’s highest Medicaid enrollment rate and pockets of deep poverty. Oil money helps fill those gaps.
Still, the source creates tension. Progressives who control the state legislature prefer to shrink reliance on extraction. “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,” observed Lonna Atkeson, political science professor and director of the LeRoy Collins Institute at Florida State University. She has studied the state’s voting patterns for years.
Haaland, a member of Laguna Pueblo who could become the first female Native American governor, once worked to curb unchecked oil and gas growth in Washington. Now she eyes the boom revenue to expand the child tax credit and a refundable credit for working families. “We have obligations to try to have a better world overall,” she said. “I think we can do that.”
Her Democratic primary opponent, Albuquerque District Attorney Sam Bregman, takes a more direct approach. He proposes one-time $500 payments to residents earning under $200,000 and elimination of personal income taxes for those 65 and older. “It is the resources of the people that’s generating that revenue,” Bregman argued. “We ought to give it back to the people.”
Republicans see opportunity too. Three candidates for governor push aggressive tax relief. They talk of eliminating the state income tax, which brings in about $2.2 billion yearly and covers roughly one-fifth of general fund needs. Pollster Brian Sanderoff, president of Research and Polling Inc., calls it the “e-word” among GOP contenders. A Republican has not won statewide office since 2016.
Gregg Hull, former mayor of Rio Rancho, wants surpluses directed toward infrastructure in oil-producing areas and full repeal of personal income tax to match neighbors like Texas and Wyoming. “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.’”
Duke Rodriguez, a cannabis entrepreneur and former human services secretary, filed suit against the universal child care program. He claims it launched without proper legislative approval, though lawmakers later passed supporting measures. Rodriguez says the state suffers not from lack of resources but from poor results. “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.”
The discomfort extends beyond party lines. Justin Theal, senior officer at The Pew Charitable Trusts who tracks state finances, calls the pattern a double-edged sword. Energy states such as Alaska, North Dakota, New Mexico and Wyoming gain most directly. Alaska alone expects an extra $1.05 billion across the current and next fiscal years. Yet higher fuel costs hit households and businesses, potentially slowing consumer spending and sales tax collections everywhere.
Oil companies themselves show restraint. The New York Times reported that producers hesitate to ramp up output despite prices that have topped $100 a barrel at times. Investors demand discipline. Executives base decisions on expected prices six to 12 months out, not today’s spot levels. “Do you want to be the dumb guy that sees oil at $100, raises your budget 25 percent and then watches oil plummet?” asked Dan Pickering, chief investment officer at Pickering Energy Partners.
Drilling rigs in the Permian have not surged. Companies including Exxon, Chevron and smaller players in New Mexico’s Delaware Basin stick to capital budgets. They return cash to shareholders rather than chase short-lived spikes. Recent dealmaking hit a two-year high in the first quarter before volatility from the conflict slowed activity, according to Reuters.
Diamondback Energy, a major Permian operator, did raise output modestly and added rigs in response to the rally, Bloomberg noted. Yet the broader industry response remains measured. The International Energy Agency warned the war wiped out expected global oil demand growth for the year as high prices squeezed consumers.
New Mexico’s heavy crude travels mainly to Texas refineries and Gulf Coast hubs. That link ties the state’s fortunes tightly to international benchmarks. A fragile cease-fire exists, but few analysts expect the Hormuz bottleneck to vanish quickly. Prices could stay elevated for months.
The next governor will inherit oversight of the massive investment portfolio and decisions on how to allocate any sustained surplus. Democrats favor targeted credits and program expansions. Republicans push tax cuts and skepticism toward new entitlements. Both sides know the money originates in conflict half a globe away.
And the tension lingers. Higher gasoline and diesel prices ripple through local economies. Truckers and farmers absorb diesel costs that climbed faster than gasoline. Businesses pass on expenses where they can. Consumers feel it at the pump. The same force that pads state coffers drains household budgets.
State economist estimates from earlier in the conflict projected hundreds of millions in added revenue if prices held above $90. Those forecasts have proven directionally correct even as exact totals fluctuate with markets. The Legislative Finance Committee tracks the sensitivity closely. Its data underpins the $59 million per dollar figure now widely cited.
So New Mexico sits on unexpected cash. Its leaders debate whether to lock it away for future stability, return it directly to taxpayers, or expand services that have reduced poverty metrics in recent years. The debate plays out against a backdrop of war, disrupted shipping lanes and global energy anxiety.
Politicians on the campaign trail cannot escape the contradiction. They celebrate fiscal health while expressing unease at its cause. They promise relief or new programs funded by revenue they would prefer not to need. The oil keeps flowing. The checks keep arriving. And the questions remain. How long will the windfall last? What should the state do with it? And at what moral and political cost?