In the last several weeks Jamaicans have seen a sharp increase in fuel prices at the pumps following the similarly sharp and sustained shift in global oil markets. Since the end of last year oil prices have effectively doubled; moving from approximately US$57 per barrel for West Texas Intermediate crude to above US$115 per barrel, driven by escalating tensions in the Middle East and the disruption of key supply routes, including the Strait of Hormuz.

To put this in context, the national budget for FY 2026/2027 was framed on oil price assumptions in the low-to mid-US$60 range. We are now operating in an environment that does not reflect a marginal deviation. It is a fundamental shift in one of the most important cost drivers in the Jamaican economy.

And, for Jamaican households, the effects are already being felt: Beyond the prices at the pump, higher fuel prices will invariably translate directly into increased transportation costs. They feed into electricity generation, where fuel remains a dominant input. And, over time, they work their way into the broader cost structure of the economy, affecting food prices, goods, and essential services.

In short, higher oil prices do not remain contained; they cascade.

A POLICY DESIGNED TO PROTECT

This is not a new risk. Jamaica’s exposure to oil price volatility is structural, rooted in our reliance on imported fuel and reinforced by the composition of our energy mix. What we are experiencing now is precisely the type of scenario policymakers have long anticipated.

The issue, however, is not the existence of the risk. The issue is how we chose to manage it.

In 2015 Jamaica introduced an additional tax on fuel, approximately $7 per litre, announced by the then Minister of Finance Dr Peter Phillips following consultation with stakeholders, including the private sector. The purpose was clear: The tax would fund a hedging programme, a structured form of financial protection designed to cushion both the fiscal accounts and Jamaican households from sudden increases in oil prices. This approach was both rational and necessary.

Jamaica is not an oil-producing country, and over 80 per cent of our electricity generation remains linked, directly or indirectly, to petroleum products. In that context, managing oil price risk is not optional. It is essential.

WHAT A HEDGE IS… AND WHAT IT IS NOT

Over the years, criticism has emerged around the initial hedge, particularly in the period shortly after the first and only round of hedging under the programme in FY 2015/2016, with some arguing that it “did not work” and that there were issues with the “timing”.

At that time, Jamaica spent approximately US$20 million to secure an option covering roughly 8 million barrels of oil. This represented only a portion of the country’s total consumption, which was approximately 24 million barrels over the 18-month period covered by the hedge. In other words, the programme was measured and partial, not an attempt to hedge the entirety of Jamaica’s exposure.

At the time the decision was taken global oil prices had already begun to decline from levels above US$100 per barrel. However, the outlook remained highly uncertain. There was no clear consensus as to where prices would settle, and the risk of a rebound remained very real.

In that context, taking out protection was not only reasonable, it was prudent.

In the period that followed, oil prices continued to fall sharply and unexpectedly, ultimately moving well below the strike price. As a result, the hedge was not exercised. From that outcome some concluded that the hedge had been a waste. But that conclusion is based on a misunderstanding.

A hedge is not designed to guarantee a gain. It is designed to manage risk. It is, in effect, insurance.

At the time, the Private Sector Organisation of Jamaica made this point clearly, noting that the decision to hedge was sound because it sought to mitigate a potentially much larger risk. As it explained, the cost of approximately US$20 million to protect against a possible exposure in excess of US$200 million made “good business sense”. That framing remains instructive.

Every year, Jamaica pays premiums as part of its disaster risk management framework, for example. In most years, thankfully, there is no qualifying disaster. There is no payout. Yet we can hardly describe those premiums as wasted, especially in a year like this, following the devastation of Hurricane Melissa, where the value of preparedness, protection, and risk mitigation becomes painfully clear.

We understand that the value lies in protection, in the ability to respond when a crisis does occur. The same principle applies here. The fact that the hedge did not yield a payout in that particular year does not invalidate the policy. It simply means that the risk did not materialise during that period.

STRUCTURED PROTECTION TO FULL EXPOSURE

Instead of maintaining that framework, Jamaica moved away from it. The tax that was introduced to fund that protection remains in place; Jamaicans are still paying it. What has changed is that the policy it was meant to support is no longer being consistently applied. Over time, those revenues have been absorbed into general fiscal operations, and the structured hedging programme has not been sustained. In effect, we have moved from planned protection to reactive intervention.

During the sharp increase in oil prices following the Russia-Ukraine war, the Government’s approach, as articulated at the time, relied on targeted relief measures rather than a standing hedging framework.

As former Finance Minister Dr Nigel Clarke indicated in his 2022 budget contribution, the decision was taken to retain the fuel tax while setting aside resources to support those most adversely affected by higher energy prices. That approach may provide temporary assistance, but it does not provide certainty. It does not provide continuity. And it does not offer the scale of protection that a structured programme can deliver.

THE IMPACT

From a fiscal perspective, the effects of rising oil prices can be nuanced. There may be areas in which revenues increase and others where expenditures rise. The overall impact on the budget is not always straightforward. But for Jamaican households, the situation is far more direct: Think higher fuel prices, higher electricity bills, and higher costs across the economy.

And these pressures are now being compounded by additional taxation at a time when many Jamaicans are still recovering from the effects of Hurricane Melissa.

This brings us to a simple but important question: The issue is not that oil prices have risen. The issue is that we have allowed ourselves to become fully exposed to those increases, despite having once put in place a policy designed to protect against them. We have continued to collect the premium, but we have discontinued the insurance. The question now is whether we restore that protection or continue to leave Jamaican households to absorb the full impact of a risk we understand and have the tools to manage?

Good policy is not judged by whether it delivers a benefit every year. It is judged by whether it protects people when they need it most. And that is where the current approach falls short.

Ramon Small-Ferguson is the chief executive officer of Barita Investments Limited, president of Jamaica Securities Dealers Association, a senator, and deputy Opposition spokesperson on finance.

Ramon Small-Ferguson