April 1, 2026 - The evolving war in the Middle East has triggered an abrupt rise in oil and gas prices that will likely provide a temporary boost for mineral-producing U.S. states’ economic output.

Broader macroeconomic pressures, however, could blunt growth if prices remain elevated and affect inflation and consumer discretionary spending.

In recent years, these states have actively managed fiscal and budget discipline, conditioned by previous oil and gas price swings that helped them preserve, and in some cases strengthen, overall credit quality.

Although some operating fund reliance on mineral-related revenues remains, many states have diligently implemented measures to isolate mineral-driven revenue by using them for one-time purposes.

New Mexico and Texas are exceptions to the mining sector’s historically positive yet uneven (largely oil and gas activities) contribution to economic output, with outsize growth usually temporary and long-term average growth rates below those of national peers.

Uncertainty Weighs On Economic Forecast

The oil price shock in response to the ongoing conflict in the Middle East has somewhat abated, but S&P Global Ratings views the lingering uncertainty--both in the war’s magnitude and duration--as weighing on markets and economic growth prospects in the U.S. For now, S&P Global Ratings Economics forecasts continued positive GDP growth of about 2.2% for 2026 (largely spurred by better-than-expected year-end 2025 strength), although the balance of risk leans squarely to the downside. 

Within that context, it’s premature to believe that oil producers would ramp up production in the U.S. and it would depend on growing confidence that elevated prices persist well beyond the short term. Consistent with our price assumptions (see “S&P Global Ratings Raises TTF Price Assumptions Following Ras Laffan Strike,” March 19, 2026), respondents to the Dallas Fed Energy Survey (March 25, 2026) conveyed their expectation that West Texas Intermediate prices could moderate to $74 per barrel by year-end. Of note, the survey also reported that, of the firms that drilled or completed horizontal wells in the past two years, about half indicated no change to their production plans in 2026 despite currently higher prices.

Mineral-Producing States Have Largely Trailed Peers

The 10-year compound annual growth rate for mineral producing states (except for New Mexico and Texas) is lower than the median U.S. state growth rate of 2%, ranking them among the slowest-growing states compared with peers. As a result, while upward mineral price momentum generally benefits the financial positions of states and local economies that host oil and gas activities during an energy boom--through increased severance taxes, property taxes, and sales tax--an abrupt shock or inevitable global energy market correction usually leads to weaker growth and revenues over time. Therefore, absent further diversification or other catalysts for growth, mineral-producing states could lag peers.

Management Teams Have Learned From Previous Roller Coaster Rides

These boom-bust cycles have conditioned many management teams to tread with caution and institute protective budget measures (such as building up and maintaining higher reserves with minimum reserve targets, creating trusts or permanent funds, or isolating direct oil- and gas-related revenues from general fund operations) to prepare for leaner economic and budget conditions. In recent years, states have also appropriated mineral-derived revenues for one-time purposes, including pay-as-you-go capital, one-time payments for temporary taxpayer relief, reduction of long-term liabilities, or to increase budgetary reserves. These practices, when well-embedded and consistently sustained, have strengthened credit quality for some mineral-producing states.

From a credit perspective and with the balance of risk to the downside, the current situation is different, and might also be for mineral-producing states. Although the resurgence of oil and gas prices could temporarily help these states, the environment comes with added inflationary risks that could ultimately lead to broader economic softness or tip the economic balance toward a slump. S&P Global Ratings will be watching how states manage their finances in this period of uncertainty, particularly as they forecast the trajectory of their revenues and balance sheets.