By Dan Frosch, Benoît Morenne and Arian Campo-Flores
SANTE FE, N. M. -- New Mexico churns out about 2.3 million barrels of crude every day, enough to make it the nation's second-largest oil-producing state behind its more famous neighbor, Texas. In fiscal year 2025, New Mexico raked in at least $7.3 billion in revenue from the output. Now, it stands to make even more.
Higher oil prices brought on by the conflict with Iran might vex the global economy, but for some U.S. states, they are a windfall that will help close budget deficits, fund early childhood education and improve roads.
"At the end of the day, it means more jobs and more opportunities for people," Jonathan Sena, the mayor of Hobbs, N.M., said of higher oil prices. "Oil-and-gas is the foundation of our economy." Hobbs has reaped the rewards of its place in the biggest oil-producing county in the country: As oil prices soar, restaurants and hotels fill up, construction booms and retail sales rise.
Higher oil costs strain the U.S. economy by raising gasoline and diesel prices, and the prices of a myriad of goods and services. But unlike during past oil shocks, the U.S. itself is now a major oil producer, providing insulation for the economy from the worst effects of the war.
The southeast corner of New Mexico hosts some of the most productive wells in the Permian Basin, the nation's most prolific oil field that extends far into West Texas.
Oil-producing regions of the U.S. are seeing their output fetch higher prices as Iran blocks tankers from safely transiting through the Strait of Hormuz.
The U.S. oil benchmark settled at $98.71 a barrel Friday. Federal forecasters at the Energy Information Administration expect prices to average around $76 between March and the end of the year because of the war. Prices averaged about $65 in 2025. If the forecast holds, the roughly $11 increase would translate into hundreds of millions of dollars in additional receipts for New Mexico.
Other oil-producing states also are expected to see a short-term boon to their budgets. Alaska faces a $500 million deficit, but additional revenue expected from rising oil prices means the state won't have to dip as deeply into its savings to plug the gap, said Alexei Painter, who heads the state's legislative finance division.
For the upcoming fiscal year, Republican Alaska Gov. Mike Dunleavy's proposed budget included a $1.6 billion deficit. Painter said that the increased revenue from energy prices wouldn't necessarily close all of it, but state lawmakers likely won't need to scale back the budget as much as they would otherwise need to.
Alaska draws revenue from oil-and-gas production both from royalties and through a progressive severance tax, which means the tax grows as the price of crude climbs. The state collected about $2.5 billion in petroleum revenue in the fiscal year 2025, a decrease of roughly $500 million from fiscal 2024 as average oil prices fell by about $11 a barrel between the two cycles, according to Alaska Department of Revenue reports.
Determining just how much money the state will have on hand for budget purposes given the rapidly shifting situation in the Gulf is extremely tricky.
"We just have to keep monitoring it," Painter said.
One potential limit to the states' windfall is that oil producers lock in a price for some of their future output to shield themselves from price gyrations, said Nikki Morris, executive director of the Ralph Lowe Energy Institute at Texas Christian University. Such hedges limit how much upside companies capture when oil prices rise and could have a dampening effect on additional revenue.
While crude prices have soared, U.S. oil producers aren't rushing to drill more. In recent years, public companies, which account for the bulk of U.S. production, have been asked by Wall Street to rein in spending and instead return cash to shareholders via buybacks and dividends.
Chief executives and analysts say companies need to see the U.S. oil benchmark hover between $75 and $85 a barrel for several months before they consider amending their drilling programs.
The EIA expects the national output to average 13.6 million barrels a day in 2026 -- roughly the same level as last year -- and increase by another 200,000 barrels a day in 2027 on the back of higher prices. An uptick in production, even modest, would translate into additional revenue for oil-producing states in the form of royalties and tax revenue.
In Wyoming, where the oil and natural-gas industry provides the largest source of revenue some years, a legislative staffer this past week shared an analysis with lawmakers of the potential effects of rising oil prices.
While the state's Consensus Revenue Estimating Group had been forecasting $55 per barrel, it did an assessment at $100 per barrel and found it would increase revenue by roughly $40 million a month, said Don Richards, co-chairman of the group.
That kind of money would help the state make up a shortfall in revenue from natural gas, which is considerably lower than the group had forecast as a result of a warmer-than-expected winter, Richards said. If oil prices remain high for at least two months, overall revenue would exceed what the group had forecast.
Oil-and-gas money in Wyoming goes toward a variety of funds and entities, including K-12 education, the University of Wyoming and public infrastructure. Those areas would stand to benefit from elevated oil prices.
"It's a huge deal for the state of Wyoming," said Ryan McConnaughey, vice president and director of communications at the Petroleum Association of Wyoming.
In New Mexico, a bump in oil revenues is life-altering. The state is one of the nation's poorest. Billions of dollars in annual revenue from oil-and-gas production already helps fund everything from education to Democratic Gov. Michelle Lujan Grisham's nascent universal child care program.
"In the short term, the higher crude prices will be a benefit for New Mexico," said Xiaoyang Wang, an assistant professor of economics at the University of New Mexico.
Wang said that an average increase of $1 per barrel in oil prices for the rest of the year would roughly translate into an $89 million jump in annual state revenue, or about an additional $300,000 a day.
The state's oil-and-gas revenue goes into several different funds, including one that finances early childhood care and education. That fund was originally seeded with $300 million in state money in 2019 and since has grown to $10 billion, according to Charles Sallee, director of New Mexico's legislative finance committee, a testament to the state's energy revenue growth. The windfall has allowed the state to triple the amount of annual money it spends on early childhood care over the past several years.
In New Mexico, taxes on oil sales are assessed and collected in the months afterward so the impacts of the latest boon won't become apparent until deeper into the spring, Sallee said.
State and industry officials say despite the benefits of a price increase, they have to cushion against the wild swings of booms and busts.
Todd Staples, president of the Texas Oil & Gas Association, said the "oil and natural gas industry is hopeful for a speedy solution to the military operations in Iran and a return to certainty and predictability."
Write to Dan Frosch at dan.frosch@wsj.com, Benoît Morenne at benoit.morenne@wsj.com and Arian Campo-Flores at arian.campo-flores@wsj.com
(END) Dow Jones Newswires
March 14, 2026 11:00 ET (15:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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