In the vibrant tapestry of sustainable development, various hues emerge, each representing a facet of environmental, social, and economic vitality. From the lush greens of renewable energy to the azure blues of marine conservation, and the warm oranges of community resilience, the Caribbean region finds itself at the nexus of this spectrum. The diverse colors of sustainable development are very significant and hold a tremendous potential for the Caribbean’s prosperity. Let’s look at some of the hues now from a Caribbean perspective.

Green Economy: This refers to an economic system that aims to reduce environmental risks and ecological scarcities, and that aims for sustainable development without degrading the environment. It is closely related to ecological economics and focuses on the intersection of the economy, the environment, and society. Key aspects often include reducing carbon emissions, increasing energy and resource efficiency, and preventing loss of biodiversity. Some of the financial instruments that will be used to mobilize private sector capital are debt swaps and Green, Social, Sustainability and Sustainability-linked (GSSS+ or “thematic”) bonds. Thematic bonds have been issued in Barbados, Dominican Republic and Trinidad and Tobago. However, the regional thematic bond market is very small and embryonic in comparison to the Latin American economies and the world

Blue Economy: This concept extends the sustainability focus to the oceans and waterways. It encompasses economic activities that directly or indirectly take advantage of the marine environment. This includes industries like fishing, aquaculture, tourism, and renewable energy (such as offshore wind and tidal power). The blue economy aims to promote the growth of these sectors in a sustainable way that preserves aquatic and marine ecosystems. Blue bonds and blue loans are innovative instruments that earmark funds for ocean-friendly projects and protecting critical clean water resources. In 2022, the Blue Bonds for Ocean Conservation Program, enabled Barbados to replace relatively expensive pre-existing debt (7.2% average cost) with significantly lower all-in cost of financing (4.9%). This debt repurchase was funded by new financing (the “Blue Loan”) arranged by Credit Suisse and CIBC FirstCaribbean in USD (50%) and Barbadian Dollars (BBD) (50%), and co-guaranteed by IDB and TNC. Other financing mechanisms to support blue economy projects include impact investing, venture capital, and blended finance. Developing insurance products tailored to ocean risks (such as extreme weather events, coastal erosion, and marine pollution) can attract investment and protect blue economy assets.

Orange Economy: Sometimes referred to in discussions about creative industries, the orange economy includes sectors such as arts, culture, and entertainment. Architecture, visual and performing arts, crafts, film, design, publishing, research and development, games and toys, fashion, music, advertising, software, TV, radio, and video games are also some of the sectors that make up the Orange Economy. It’s about leveraging creativity and innovation to foster economic growth, which also can include preserving cultural heritage and promoting social inclusion. The creative economy also includes tourism and cultural heritage. Potential is great for the Caribbean region and tie-in with the traditional tourism offerings are feasible. In Trinidad and Tobago, the Ministry of Tourism, Culture and the Arts estimated visitor expenditure for the 2024 Carnival period was US $94.2 million excluding private fetes and parties, which are major activities. The creative economy was expected to reach a global valuation of US $985 billion by 2023, and a projected 10% of global GDP by 2030. Public-Private Partnerships (PPPs) are one of the common methods of financing used in the orange economy. PPPs include collaborating with governments, private companies, and NGOs to fund cultural events, festivals, and artistic initiatives. These partnerships promote creativity and boost economic activity.

The spectrum of sustainable development offers a kaleidoscope of opportunities for the Caribbean region to thrive in harmony with society and its celebrated nature. By harnessing the greens of renewable energy, blues of marine conservation, and oranges of community resilience, Caribbean nations can paint a picture of prosperity that is both vibrant and enduring.

Following our last article and the ongoing conflict between Israel and Iran, crude prices continue to edge higher. In the Caribbean, the fluctuating prices of oil and energy significantly shape the economic landscapes of various nations. Understanding who the producers and users in the region are, and the expected implications if oil prices remain elevated and potentially surpass US $100 per barrel, is critical for stakeholders in both the public and private sectors.

Who Are the Oil Producers?

The Caribbean is not ubiquitously endowed with oil and gas resources. The notable fossil fuels and derivatives producers in the region are Guyana and Trinidad & Tobago. Suriname is an oil producer but overall, a net importer of fossil fuels and derivatives. Guyana is a newcomer to oil and gas production but is now the largest producer in the region. Oil and gas output accounted for a massive 70.4% of Guyana’s GDP in 2023 and 88% of total exports. Trinidad and Tobago is the other significant producer, with oil and natural gas accounting for about 40% of its GDP and 80% of exports. Guyana and Trinidad & Tobago benefit from higher oil prices, which can lead to increased revenue and economic growth, provided global demand remains stable.

Who Are the Energy Users?

Every nation in the Caribbean, including oil producers, consumes energy, but the scale and impact vary significantly. Island nations like Jamaica, the Bahamas, and Haiti rely heavily on imported oil for their energy needs. These imports make up a significant portion of their total import bill and link their economic health closely to oil price fluctuations. High oil prices can strain their trade deficits and amplify inflationary pressures, making everyday goods and services more expensive for their citizens.

How Do Global Prices Filter Through?

The pricing of oil in Caribbean countries, whether they are producers or consumers, is ultimately tied to global oil markets. Caribbean oil producers like Guyana and Trinidad & Tobago sell oil and gas at prices partially dictated by global benchmarks like Brent Crude and Henry Hub. Contracts with off takers can be complex and contain a mix of pricing indices and other factors such as taxes and transportation costs. However, sustained price increases in the common global benchmarks will inevitably influence prices across the board. When these benchmarks rise, the producers can and usually will obtain higher revenues per barrel, boosting their economic position. However, the benefit to the national economy depends on the government’s ability to manage these revenues effectively.

For the energy users in the Caribbean, global oil prices are a direct input into the cost of imported oil. When global prices rise, the cost of imports increases correspondingly, leading to higher domestic prices for fuel and energy. This increase not only affects transportation and manufacturing but also has a ripple effect across all sectors that rely on fossil fuels, ultimately impacting the cost of living for residents.

Expected Impact of Oil Prices Rising Above US $100

The prospect of oil prices rising above US $100 per barrel presents a mixed bag for the Caribbean. For producers like Guyana and Trinidad and Tobago, it might signal a boon. Sustained higher prices would boost fiscal revenues, which could be reinvested in infrastructure or used to buffer the economy against future shocks.

For nations dependent on oil imports, the scenario would be unfavourable. Sustained higher oil prices would exacerbate current account deficits and increase inflationary pressures. Countries like Jamaica and the Bahamas might see increased costs in electricity and transportation, which could slow economic growth and increase costs for their populations. Moreover, higher energy costs could undermine tourism by increasing operational costs for hotels and airlines, thereby potentially reducing the competitiveness of these destinations.

Where is Petrocaribe?

Founded in June 2005, Petrocaribe was an agreement between Venezuela and several Caribbean countries to supply them with oil and gas products at concessional prices or alternative arrangements. Petrocaribe had a total of 18 members: Antigua & Barbuda, Bahamas, Belize, Cuba, Dominica, Dominican Republic, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Saint Kitts & Nevis, Saint Vincent & the Grenadines, Saint Lucia, Suriname, and Venezuela. However, in 2019, the deals fell apart as Venezuela’s production and political issues dried up supply. Additionally, US sanctions instituted that same year ultimately led to the collapse of the arrangement. However, in November 2022, Saint Vincent & the Grenadines received an oil shipment via “re-flagging” a vessel from Cuba to avoid the US sanctions. The alternative to such an expensive and thorny strategy is to get an exemption from the U.S. Department of the Treasury’s Office of Foreign Assets Control, OFAC.  That, as well, being a difficult prospect. However, relations between the US and Venezuela were thawing and sanctions were being relaxed in a bid to support Presidential elections in Venezuela to be held on July 28th, 2024. Unfortunately, on April 17th, 2024, sanctions were reimposed as US hopes for free and fair elections in Venezuela are fading given alleged suppression of opposition candidates and voices. While not currently presenting a viable hedge against high oil and gas prices for the Caribbean region, a revived Petrocaribe type arrangement can act as a hedge and create fiscal space for countries, as it had done in the past.

Conclusion

The economic fates of Caribbean nations are intricately linked to the ebb and flow of global oil prices. While producers may find short-term gains in rising prices, the overall regional outlook emphasizes the urgent need for diversification and investment in renewable energy sources. For the Caribbean, building resilience against oil price shocks is not just an economic priority but a crucial step towards sustainable development.

Understanding these dynamics allows governments, businesses, and investors in the Caribbean to better navigate the challenges posed by the global energy markets and to strategize more effectively for a stable and prosperous future. As the global community moves towards more sustainable energy solutions, the Caribbean must also consider how to adapt its economies to decrease dependency on oil and enhance energy security and economic resilience.

By Dr. Stefan Fortuné, Ph.D. Head, Research, Technical Services & Training

As geopolitical tensions escalate between Israel and Iran, the global oil market stands on the precipice of potentially significant fluctuations. With recent conflicts igniting fears of a wider regional disturbance, stakeholders are concerned about the ramifications on oil supply and pricing.

The last time crude oil prices breached the US $100 mark was in the spring of 2022, driven by a complex interplay of market dynamics and geopolitical factors, including a strong post-COVID rebound (especially in jet fuel), sanctions on Russia, and dwindling inventories. The above US $100 price of 2022 was only for a few months. A more sustained high price period occurred 2011-2014. At that time, the price environment was characterized by instability in several oil-producing regions. The situation today shares some common features to these high price periods in context and potential impact.

Israel and Iran are pivotal to the stability of the Middle East, a region synonymous with oil production. Although Israel is not a major oil producer, its strategic location and involvement in regional politics can influence market sentiments and disrupt oil logistics. Iran, on the other hand, holds some of the world’s largest reserves of oil and natural gas. The nation’s ability to influence oil prices is significant, as seen in past instances where geopolitical tensions involving Iran have led to spikes in oil prices.

Currently, the conflict could lead to heightened security risks in major shipping routes such as the Strait of Hormuz, through which about 20% of the world’s oil passes. Any disruption here could choke off supplies and cause oil prices to spike. Moreover, the possibility of involving other regional powers could exacerbate the situation, leading to a broader impact on global oil supply chains.

Furthermore, today’s oil market dynamics are influenced by a wider array of factors compared to 2022. These include higher inventories, the resurgence of U.S. shale oil production, changing energy policies in response to climate change, and the global push towards renewable energy. These factors could cushion the impact of any supply disruption, but they also add layers of complexity to predicting exact market reactions.

As we monitor this developing situation, stakeholders should prepare for volatility in the oil markets. The potential for oil prices to exceed US $100 per barrel is real, dependent on the conflict’s progression and any resultant disruptions in oil supply. Market participants would do well to stay informed and agile, ready to respond to rapid changes in the market landscape.

What are your views on this topic?

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