Mariano Browne
War is destructive and costly. Industrial and physical infrastructure suffers in the countries where fighting occurs. Economic costs to non-combatant countries may be indirect, but remain significant, even if not immediately visible. The world still relies on fossil fuels: oil and gas make up over 50% of global energy consumption. Although renewables are growing, they only account for 15%. Fuel cost is the main driver of the economic impact arising from the war in Iran.
While oil and gas prices have already been affected, the full impact is still unfolding. What comes next depends on whether the ceasefire holds and how the US and Iran blockades operate. Oil tankers move at about 15 knots—roughly bicycle speed—and take around 45 days to reach most western refineries. With the war having started 51 days ago, shortages and price rises will now begin to take effect. Countries that are self-sufficient or have buffer stocks can mitigate the impact while supplies last. Bloomberg reports suggest financial markets have been “too blasé” about the conflict’s economic toll and have not fully priced in the potential economic impact.
Countries in Southeast Asia are much closer to the Gulf states and depend heavily on them for energy and fertiliser inputs. They have felt the impact first. Millions of small agricultural holdings in Southeast Asia are struggling to find affordable crop nutrients and the diesel to run tractors and irrigation pumps, leaving harvest-ready fields in one of the world’s biggest rice-growing regions lying idle. President Trump’s decision to impose his own blockade on shipping outside the Hormuz Strait exacerbates the shortages and increases pain on the rest of the world. Commodity importers and those with “pre-existing fragilities” (high debt burdens, for example) will be the worst affected. Iran and the Gulf states have already suffered heavy infrastructure damage, and business confidence will take many years to rebuild.
The IMF World Economic Outlook presents three scenarios: baseline, adverse, and severe. The baseline assumes that war disruptions end by July 2026, with global growth at 3.1% (Trinidad and Tobago at 0.7%) and inflation at 4.4%. The adverse scenario projects 2.5% growth and 5.4% inflation. The severe scenario expects 2% growth and 5.8% inflation. These projections indicate significant uncertainty. Despite President Trump’s claim that negotiations would resume soon, the negotiation positions remain polarised, and Israel’s interests dominate, making a quick cessation of hostilities unlikely.
On Friday, April 17, after Israel announced a ceasefire with Lebanon, Iran opened the Hormuz Strait to all commercial traffic for the ceasefire’s duration. Iran also required ships to use a designated route in its territorial waters under Iranian supervision. This aligns with point 2 of Iran’s 10 Point peace proposal: continued Iranian control of the strategic waterway.
The announcement was later narrowed to exclude ships and cargoes from “hostile” countries. Iran’s state media said the government would again close the strait if the US did not lift its blockade of Iranian shipping. President Donald Trump responded that the blockade would continue. Who will blink first?
Financial markets responded positively. Oil and European gas prices tumbled, and stock markets rebounded. In the Strait, ships remained anchored. Also on Friday, the US Treasury Department extended the original 30-day waiver on sanctioned Russian oil loaded on vessels until May 16. The extension comes two days after Treasury Secretary Scott Bessent said Washington would not renew the waiver.
Clearly, the Trump administration is concerned about rising global energy prices and is seeking to reduce fuel price increases by allowing the free flow of oil from Russia. President Trump’s ceasefire announcements, giving sanction waivers to Russian and Iranian oil while simultaneously maintaining a blockade of all shipping going to the Hormuz Strait, are contradictory policies.
With this uncertain global context and shifting scenarios, the midyear budget review will take place next month. Planning for the 2027 budget has already been initiated. What can we expect?
The most optimistic view is based on news that Shell is negotiating with the Venezuelan government to gain access to additional natural gas fields. Note that Shell is negotiating on its own, not representing T&T. If successful, Atlantic LNG’s supply could increase, benefiting T&T and Shell, depending on the commercial terms and deal structure.
Speaking this week while in Washington at the IMF meeting, the Finance Minister said higher energy prices “are” accelerating T&T’s recovery. He noted the Government’s economic strategy centres on fiscal discipline and diversification by boosting domestic production, improving tax collection, strengthening the Board of Inland Revenue, and expanding support for manufacturers through the Export-Import Bank. The focus is on growth in agriculture, tourism, manufacturing, digital services, and artificial intelligence.
Sounds familiar? These objectives are difficult to implement as successive governments have said the same thing. However, once energy revenues begin to increase, there will be a powerful incentive to return to business as usual. Transfers and subsidies account for more than 50% of government expenditure, and there is a strong tendency for this statistic to worsen as the public views rising energy prices as a reason for increased government expenditure. Managing expectations and public sector unions’ demand will be a stern litmus test of the Government’s political will.
Mariano Browne is the Chief Executive Officer of the UWI Arthur Lok Jack Global School of Business
