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An Associated Press report is putting a national spotlight on one of New Mexico Democrats’ most uncomfortable political realities: the state’s left-wing policy agenda is being bankrolled by the very oil and gas industry many progressives claim they want to move away from.

According to the AP report, the conflict with Iran and the resulting bottleneck in the Strait of Hormuz have sent oil prices surging — and New Mexico is now reaping a massive financial windfall.

That windfall is politically awkward for Democrats who oppose the war, frequently criticize fossil fuels, and continue pushing climate policies aimed at reducing dependence on oil and gas. Yet in New Mexico, fossil fuel production remains the financial engine behind many of the state’s most expensive progressive programs.

New Mexico is the nation’s second-largest oil-producing state, behind only Texas. Revenue from taxes, royalties, and lease sales helps fund government programs including tuition-free college, free school meals, health care spending, and Gov. Michelle Lujan Grisham’s universal child care initiative.

Now, with oil prices rising because of global instability, money is pouring into Santa Fe.

Former U.S. Interior Secretary Deb Haaland, who is running for governor in the Democratic primary, acknowledged the tension in comments to the Associated Press.

“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,” Haaland said.

Haaland, a former congresswoman and state Democrat Party chair, served in Joe Biden’s Cabinet, where she backed extreme efforts to limit oil and gas development on federal lands. But as a gubernatorial candidate, she is now proposing to use New Mexico’s energy-driven surplus to expand tax credits — blatant hypocrisy.

According to the AP, Haaland wants to increase the state child tax credit and boost the refundable working families tax credit, which would primarily benefit lower-income New Mexicans.

“We have obligations to try to have a better world overall,” Haaland said. “I think we can do that.”

Her Democratic opponent, Bernalillo County District Attorney Sam Bregman, is calling for direct rebates to taxpayers. Bregman told the AP he wants one-time $500 checks for New Mexicans making under $200,000 per year, along with eliminating personal income taxes for residents age 65 and older.

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

The scale of the oil windfall is substantial. According to the Legislature’s budget and accountability office, every $1 change in the average annual price of oil means roughly a $59 million swing in New Mexico state government revenue.

Based on wartime price changes, the AP reported that New Mexico could see about $850 million in additional state income for the budget year ending in June alone. That is equal to roughly 12% of annual general fund spending.

Much of New Mexico’s oil comes from the Permian Basin and is sent to Texas distribution hubs and Gulf Coast refineries. With the war creating continued uncertainty, prices may remain elevated.

To help manage the state’s dependence on volatile oil revenue, New Mexico has funneled large portions of energy income into trust funds and reserves. Those accounts are designed to generate long-term investment returns that help fund mostly freebie programs.

But the arrangement has long created a contradiction for the progressive left: New Mexico’s ever-expanding government programs are increasingly dependent on fossil fuel dollars.

Lonna Atkeson, a political science professor and director of the LeRoy Collins Institute at Florida State University, told the AP that many New Mexico progressives are uncomfortable admitting how much the state relies on oil money.

“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,” Atkeson said. “Like, ‘We should not be funding our stuff with that money.’ I’ve heard those arguments.”

The next governor will have significant influence over the state’s fiscal future. The winner of the 2026 race will help oversee a state investment council managing roughly $68 billion, including funds that support K-12 education.

New Mexico is not the only energy-producing state benefiting from the wartime price spike. The AP noted that Alaska is projecting an additional $1.05 billion in revenue for the current fiscal year and the one beginning July 1.

Justin Theal, a senior officer with The Pew Charitable Trusts who studies state fiscal trends, said energy-heavy states are uniquely affected.

“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,” Theal said.

He described the situation as “a double-edged sword,” because higher oil prices boost revenue for producer states while also resulting in higher costs.

“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.

Republican gubernatorial candidates, meanwhile, are pointing to the windfall as evidence that New Mexico should pursue major tax relief instead of more government spending.

“Republicans are using the ‘e-word’ — eliminate income taxes,” Albuquerque pollster Brian Sanderoff, president of Research and Polling Inc., told the AP.

Personal income taxes bring in approximately $2.2 billion annually for state government, covering about one-fifth of general fund obligations.

Republican candidate Duke Rodriguez, a cannabis entrepreneur and former state human services secretary under Gov. Gary Johnson, is also challenging the Lujan Grisham administration’s universal child care program in court. His lawsuit argues the program was launched without required legislative authorization, though supporting legislation was later passed. A court has ordered the administration to respond.

Rodriguez told the AP that New Mexico does not have a revenue shortage, but a spending and accountability problem.

“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,” Rodriguez said.

Republican businessman Doug Turner said the state should use the oil boom to overhaul its tax code and consider means testing for child care benefits.

Rio Rancho Mayor Gregg Hull, another Republican candidate for governor, wants New Mexico to join states such as Texas and Wyoming by eliminating the personal income tax. He also supports investing surplus dollars into infrastructure in the state’s oil-producing region.

Hull summed up the political tension plainly.

“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.

The AP report underscores a reality that New Mexico politicians often try to avoid: the state’s biggest government programs are deeply tied to oil and gas production. For Democrats, the latest revenue surge may be financially welcome — but politically awkward.