Escalating tensions between the United States and Iran are emerging as a new external risk for Caribbean economies, with regional officials warning that rising oil prices and global uncertainty could quickly spill over into higher living costs and weaker tourism demand.

Speaking at the Caribbean Development Bank’s (CDB) annual news conference in Barbados this week, CDB President Daniel Best said the conflict highlights just how exposed small, import-dependent economies remain to global shocks. He explained that the immediate concern for the Caribbean is straightforward.

“It’s oil prices,” Best said in responding to queries from the Jamaica Observer, adding that volatility in global energy markets would directly affect the cost of electricity, transportation and doing business across the region.

He noted that previous global shocks — including tariff disputes and supply disruptions over the past few years — initially pushed prices higher before inflation pressures eventually eased as markets adjusted. On Thursday, a barrel of Brent crude rose 4.7 per cen to $85.22. That’s up from close to $70 late last week. Meanwhile, a barrel of benchmark US crude climbed 8.1 per cent to $80.67. US crude last traded above $80 in August 2024.

While the conflict’s implications for global energy markets are already becoming evident, acting deputy director of economics at the CDB, Jason Cotton said its too early to determine exactly when Caribbean economies might begin to feel the effects.

“It’s early days. There are a lot of moving parts in this scenario. What we’ve seen is global commodity prices moving, but there have been announcements as recently as this morning which suggest the situation is extremely volatile,” Cotton said.

“To give you a date would be unwise, but if it continues to manifest itself, we will have to monitor the situation.” he added.

The tension across the Middle East comes at a delicate moment for the Caribbean. On Monday, CDB projected that regional economic growth will remain subdued in 2026. Excluding Guyana, Caribbean economies are expected to expand by about 1.1 per cent, reflecting slower tourism momentum, fiscal pressures and persistent structural vulnerabilities. However, when Guyana’s oil-driven boom is included, regional growth is expected to rise sharply, with the country expected to expand by more than 20 per cent, lifting overall Caribbean growth to about 6.2 per cent.

Still, Cotton cautioned that the outlook could quickly shift depending on how global conditions evolve.

“If it persists, there would be upside and downside risks,” he said.

Regional energy transition seen as critical

Against that backdrop, Best said regional leaders are increasingly focused on strengthening energy security and accelerating the transition to renewable sources. Even as Guyana’s oil boom reshapes the region’s energy landscape and exploration activity expands in places like Jamaica, many Caribbean countries remain vulnerable to oil price shocks.

“I returned from St Kitts somewhat buoyed in terms of the ambition and the direction that the region is moving,” Best said, noting that governments are approaching the bank with projects aimed at reducing long-standing energy vulnerabilities.

Energy transition, he said, is becoming central to the region’s effort to make growth more durable.

Best pointed to several initiatives the bank is financing that could fundamentally change how Caribbean countries generate power.

Among them is the Dominica Geothermal Project, a 10-megawatt facility expected to come on stream later this year. The project is projected to provide roughly 60 per cent of Dominica’s electricity needs, dramatically reducing the country’s reliance on imported fossil fuels.

A similar effort is under way in Nevis, where geothermal exploration supported by the CDB could unlock about 17 megawatts of energy capacity — more than the island itself requires.

That surplus could potentially be exported to neighbouring islands.

The bank has also approved technical assistance to explore interconnection of electricity grids across the Caribbean, a step that could allow countries to share renewable energy and strengthen regional energy security.

Best said such investments are increasingly urgent in light of geopolitical developments. Latest news is that the death toll from the conflict has climbed to around 787 people in Iran, according to the Iranian Red Crescent, while retaliatory attacks have killed civilians and soldiers across the region, including six US service members, about 10 people in Israel, and dozens more in Lebanon and neighbouring states.

The crisis has already rattled global markets, with energy prices surging amid fears that shipping through the Strait of Hormuz — a route for roughly one-fifth of the world’s oil supply — could be disrupted.

“That conflict in Iran would have a direct impact… commodity prices, oil prices. And that directly impacts the energy that our citizenry will be paying for, which directly impacts businesses,” Best told journalists.

The bank is also experimenting with innovative financing structures designed to reduce the risk to already heavily indebted Caribbean governments.

In the case of the Nevis geothermal initiative, CDB financing is structured as a contingent recoverable grant. If the geothermal resource proves viable and electricity generation begins, the funding converts into a loan. If the resource is not proven, it remains a grant.

The approach allows countries to explore new energy resources without immediately increasing their debt burden.

“That means they can discover this resource without impairing the debt overhang in countries,” Best said, adding that lower energy costs ultimately benefit households and businesses alike.

In the meantime, Caribbean governments are keeping a close watch on the unfolding conflict.

Speaking at Wednesday’s post-Cabinet press briefing, local Minister of Foreign Affairs and Foreign Trade Senator Kamina Johnson Smith said that the Government is monitoring the situation in the Middle East and has issued an updated advisory to Jamaicans, urging nationals to avoid travel to the region, exercise heightened caution and remain in contact with authorities.

So far, 178 Jamaicans have been registered in the region as authorities assess potential risks to nationals abroad. Of that number, 85 are in the UAE, 44 in Kuwait, 40 in Qatar, six in Bahrain, and one each in Saudi Arabia, Oman and Israel.

Across the Caribbean, officials are also watching for possible economic spillovers.

Officials of the Caribbean Development Bank participate in the institution’s 2026 Annual News Conference in Barbados. From left: Camille Taylor, head of corporate communications; L O’Reilly Lewis, director of projects; Daniel M Best, president; Jason Cotton, acting deputy director of the economics department; and Valerie Isaac, division chief in the environmental sustainability department.

COTTON…if it persists, there would be upside and downside risks.

On Thursday, a barrel of Brent crude rose 4.7% to $85.22. That’s up from close to $70 late last week. Meanwhile, a barrel of benchmark US crude climbed 8.1% to $80.67. US crude last traded above $80 in August 2024.