Peru's Energy Crisis and the Silver Market
Compounding energy, logistical, and regulatory pressures threaten Peru's silver output. Spot prices have moved quickly in response.
Silver has moved from around $80 to over $86 per ounce in a very short time, with the move likely triggered by deteriorating conditions in Peru — the world's second-largest silver-producing nation. Several pressures are converging on the country's mining sector at once, and the silver market is responding to a credible risk that supply from a major producer is threatened.
What Is Happening in Peru
Energy. A rupture in the Camisea natural gas pipeline in March cut Peru's national gas supply by approximately 90%. Electricity generation costs subsequently increased roughly fivefold, from around $40 to over $200 per megawatt-hour. The government declared a rationing emergency, suspended natural gas exports, and drew on strategic petroleum reserves. While gas distribution has partially resumed, the episode exposed deeper structural fragility: declining domestic production, an over-stretched state oil company, and growing import dependence point to energy constraints that will not be resolved by pipeline repairs alone.
Petroperu. Peru's state oil company has seen its fourth chairman since end-2025, and its share of national fuel supply has fallen from 51% in 2013 to 19% today. The government has authorised a $2 billion loan to shore up energy supplies, but the resulting limited and expensive energy directly constrains mining operations — which depend on reliable power for extraction, processing, and smelting. Compounding the situation, ongoing global oil supply pressures stemming from the Strait of Hormuz crisis are tightening international fuel markets at the same time Peru is becoming increasingly reliant on imports. When supplies tighten further, Peru is likely to be outbid by wealthier countries competing for the same limited oil, making mining a likely casualty of rising energy prices.
Social unrest and mining governance. Road blockades and protest activity have periodically disrupted the transport of silver and copper concentrates from mine sites to ports. Separately, Peru's REINFO registry programme — which governs the status of an estimated 300,000 informal miners, primarily in gold and copper — remains unresolved, with Congress having extended the process through end-2026. The ongoing uncertainty over formalisation carries two risks for the broader mining sector:
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How Peru navigates the REINFO process will shape the political stability of its mining regions through 2026 and beyond.
Taken together, even a partial disruption to Peru's output — one of the world's largest silver-producing nations — would measurably tighten an already constrained global supply picture.
A Market That Was Already Tight
These developments are not arriving into a comfortable silver market.
As we wrote in our late-April newsletter, the LBMA silver free float — an estimate of the physical metal available to settle unallocated positions in London — fell to roughly 136 million ounces in October 2025, causing silver lease rates to surge. Against daily spot trading volumes of hundreds of millions of ounces, that buffer was thin. The pressure eased after roughly 48 million ounces are estimated to have left COMEX warehouses over the same period, with London vaults receiving comparable volumes — an emergency redistribution of existing metal rather than new supply.
The Silver Institute's World Silver Survey 2026 already projects a structural deficit of 46.3 million ounces for this year. Any sustained reduction in Peruvian output, which produced around 130 million troy ounces in 2025, would widen that gap further. Nor is the pressure confined to Peru: higher global energy costs are likely to weigh on mining operations in other producing countries as well, translating directly into higher cost-of-production and constrained output.
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Above-ground silver is not being replenished. It is being moved between vaults and then drawn down. The October 2025 squeeze did not solve the underlying deficit; it postponed the consequences. |
The Speed of the Price Reaction
Worth noting alongside the supply story is the speed with which spot prices have moved. Supply disruption in a single producing country can certainly justify a meaningful price response, but a roughly 7.5% rise in a matter of hours is a different kind of signal — it suggests the market reacted not over weeks of analyst revisions, but immediately and decisively once the news landed.
This kind of price behaviour can also be read as a comment on the state of the paper silver market itself. A market with comfortable physical reserves tends to absorb regional supply news calmly, pricing in eventual resolution. A market that has recently come close to failing to deliver — that has watched its free float fall and emergency metal airlifted between continents — has less margin for additional pressure. With Peru's supply outlook now in question, and October 2025 fresh in mind, the market appears to be repricing physical silver to reflect a near-term supply situation that has materially worsened.
The Physical Position
Above-ground silver is not being replenished. It is being moved between vaults and then drawn down. The October 2025 squeeze did not solve the underlying deficit; it postponed the consequences. Peru's energy crisis threatens to bring those consequences forward.
Fully allocated, physically held silver in Singapore is metal that exists in a vault, has a legal title attached to it, and cannot be borrowed, lent, or rehypothecated by third parties. In a market where the gap between paper claims and physical metal is narrowing, those properties matter.
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In a market where the gap between paper claims and physical metal is narrowing, the form of ownership is no longer a technical detail. It is the position itself. |
Regards,
Gregor Gregersen
Founder & CEO of Silver Bullion Pte Ltd