Mar­i­ano Browne

The US-Is­rael War on Iran is il­le­gal and reck­less. It is il­le­gal be­cause it vi­o­lates the UN Char­ter’s pro­hi­bi­tion on the use of force ex­cept in self-de­fence (UN Char­ter Ar­ti­cle 2(4)). It lacks Se­cu­ri­ty Coun­cil au­tho­ri­sa­tion. It is reck­less, as it is a “war of choice”, based on un­ver­i­fied threats, does not have Con­gres­sion­al ap­proval, and risks a cat­a­stroph­ic re­gion­al con­flict with glob­al reper­cus­sions. The same is true of US ac­tions against Venezuela and Cu­ba. The dif­fer­ence is that US and Is­raeli ac­tions in the Gulf and Iran’s re­sponse are desta­bil­is­ing the world econ­o­my.

Iran is de­fend­ing it­self against ex­ter­nal ag­gres­sors, though not all its ac­tions qual­i­fy as self-de­fence. The dif­fi­cul­ty is that in in­ter­na­tion­al law and pol­i­tics, there is no in­ter­na­tion­al po­lice­man to re­store or­der. Right is de­ter­mined by the coun­try with the strongest mil­i­tary. The IMF has sound­ed the alarm about the war’s im­pact on the glob­al econ­o­my and com­mod­i­ty mar­kets. It down­grad­ed near-term growth fore­casts, re­vised in­fla­tion fore­casts up­ward, and cal­cu­lat­ed the like­ly ef­fect of a longer war. The longer the war, the low­er the glob­al growth, the high­er the in­fla­tion, and the greater the chance of de­pres­sion. Dam­age to oil and gas pro­duc­tion ca­pac­i­ty will take time to re­pair and re­build.

Both the US and Iran are block­ing the Gulf wa­ter­way, with few en­cour­ag­ing signs on the diplo­mat­ic front. De­spite US claims that it had de­stroyed the Iran­ian navy, it seized two ships in the Gulf last week and dam­aged oth­ers. Three US car­ri­er groups pa­trol 1000 kilo­me­tres away from the Iran­ian coast, block­ing or seiz­ing Iran­ian oil tankers, de­priv­ing its cus­tomers, main­ly Chi­na, of mil­lions of bar­rels of sup­ply. There is a high prob­a­bil­i­ty of a mil­i­tary mis­cal­cu­la­tion that could lead to es­ca­la­tion.

US Pres­i­dent Don­ald Trump says he will not lift the block­ade un­til Iran agrees to a deal. Mean­while, Iran says it has no plans to ne­go­ti­ate or re­open the strait while the US block­ade re­mains. The cease­fire was go­ing to end, but was ex­tend­ed. Fur­ther­more, a sec­ond round of “talks” (some­times la­belled as ne­go­ti­a­tions) mid­wifed by Pak­istan was sched­uled, then post­poned and now looks prob­a­ble. As a re­sult, the world is back where it was a week ago: a messy cease­fire that avoids full-scale war, al­lows low-lev­el con­flict, with­out any im­mi­nent so­lu­tion.

How long will this sit­u­a­tion con­tin­ue, and how will it end? Fur­ther­more, what is the out­look for the Trinidad and To­ba­go econ­o­my?

Every eco­nom­ic sec­tor is ad­just­ing. Sup­ply chains are be­ing re­shaped, ships are be­ing rerout­ed, and ship­ping costs are in­creas­ing, dri­ving con­sumer and busi­ness prices high­er. In the mid­dle of glob­al AI ex­pan­sion, ris­ing chip and com­put­er equip­ment costs will lim­it in­vest­ment. Sim­i­lar­ly, more ex­pen­sive in­puts will add to in­fla­tion­ary pres­sures. Air­lines are re­act­ing to the dou­bling of jet fu­el costs, caused by the war in Iran and oil sup­ply dis­rup­tions, by cut­ting back flights, rais­ing tick­et prices, and in­creas­ing bag­gage fees. Caribbean Air­lines and ma­jor US car­ri­ers are af­fect­ed. In Eu­rope, Deutsche Lufthansa will scrap 20,000 short-haul flights from April 23 through May to save jet fu­el. Broad­er cuts, some of the most dras­tic among glob­al air­lines, will be un­veiled by ear­ly May for the sum­mer sea­son.

The T&T econ­o­my is in a frag­ile po­si­tion with no sub­stan­tive change since the elec­tion of a new gov­ern­ment one year ago. It is well es­tab­lished that new eco­nom­ic poli­cies may take years to have a pos­i­tive ef­fect. T^T’s econ­o­my is struc­tural­ly de­pen­dent on en­er­gy. Growth is con­strained as nat­ur­al gas pro­duc­tion re­mains un­changed. High­er en­er­gy prices would gen­er­ate ad­di­tion­al rev­enue, not re­al growth. How­ev­er, Shell’s Man­a­tee field is ex­pect­ed to in­crease pro­duc­tion in 2027, which would boost gov­ern­ment in­come. Un­til the Man­a­tee or oth­er projects come on stream in 2027, the coun­try’s eco­nom­ic po­si­tion will like­ly re­main chal­leng­ing, with lim­it­ed fis­cal re­lief.

In­creased en­er­gy prices will have a pos­i­tive im­pact on the gov­ern­ment’s fis­cal po­si­tion in 2026 and the near fu­ture. This ben­e­fit is lim­it­ed be­cause pay­ments to pub­lic sec­tor unions have first claim on any new rev­enue. For ex­am­ple, the PSA and NUGW set­tle­ments amount to $6.4 bil­lion. This fig­ure does not in­clude in­cre­ments due to teach­ers and oth­er pub­lic sec­tor work­ers.

Fur­ther­more, even if these amounts are paid over 18 months, they cov­er on­ly the pe­ri­od from 2014 to 2019. Set­tle­ments for 2020 to 2025 are still to be ne­go­ti­at­ed. More­over, the fi­nance min­is­ter al­so omit­ted high­er NIS pay­ments and the PSA set­tle­ment for 2014-19 from the 2026 bud­get. These in­creas­es will im­pact 2026 num­bers.

T&T’s fu­el sup­ply is im­port­ed and is like­ly cost­ing more, as in oth­er coun­tries. De­spite this, pump prices have not in­creased, re­sult­ing in an un­bud­get­ed fu­el sub­sidy that will ab­sorb any new rev­enue from high­er en­er­gy prices. The on­go­ing forex dif­fi­cul­ties, ac­cord­ing to the gov­er­nor, stem from re­duced en­er­gy rev­enues, not dis­tri­b­u­tion is­sues. High­er im­port prices will re­duce the forex im­pact of high­er en­er­gy prices.

These con­sid­er­a­tions com­pli­cate the bud­get process and stymie cash flow pro­jec­tions. More­over, pro­gress­ing eco­nom­ic di­ver­si­fi­ca­tion is un­cer­tain be­cause lim­it­ed fis­cal space re­stricts stim­u­lus mea­sures, there­by de­lay­ing growth and threat­en­ing pub­lic ser­vices. The coun­try can­not solve the cri­sis in the Gulf re­gion or avoid its con­se­quences, which com­pli­cates the glob­al pol­i­cy frame­work. The on­ly choice is to man­age the coun­try’s rev­enue and ex­pen­di­ture ju­di­cious­ly and im­prove pro­duc­tiv­i­ty and ef­fi­cien­cy. That re­quires lead­er­ship and dis­ci­pline.

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the UWI Arthur Lok Jack Glob­al School of Busi­ness