RENEWED fighting in the Middle East is pushing Jamaica closer to the adverse conditions Bank of Jamaica (BOJ) identified as the main risks to its inflation outlook and economic recovery, raising fresh questions about whether the financial system stress tests supporting its latest resilience assessment were severe enough to cover the shock now unfolding.

Information supplied to the Jamaica Observer by the central bank on July 15 shows that its eight-quarter forecast expects inflation to return to the four-to-six per cent target range as geopolitical tensions ease and global oil supplies normalise.

The central bank also expects real gross domestic product (GDP) to grow between one and three per cent in each of the next two fiscal years following a 1.2 per cent contraction in FY2025/26.

But BOJ warned that a more extended Middle East conflict could keep international commodity prices elevated, push domestic inflation higher than forecast, weaken tourism and related services, and raise input costs across the economy.

Less than a week later, Brent crude had risen above US$91 per barrel in early trading Tuesday, attacks had continued for a 10th consecutive night, and threats to shipping had spread from the Strait of Hormuz to Saudi Arabia’s alternative export route through the Red Sea. Reuters reported Brent at US$91.11 early Tuesday.

None of this proves that stress tests conducted by the Financial Policy Committee (FPC) are inadequate, but it makes disclosure of the assumptions more important. The committee has said only that financial subsectors generally have enough capital to withstand macro-financial stress; it has not said whether that conclusion would hold under the extended-conflict conditions BOJ itself identified as the main risk to its inflation and growth outlook.

Part of that risk has already materialised.

A tanker in the Strait of Hormuz reported being struck by a projectile Tuesday, forcing its crew to abandon the vessel. Only four commodity ships crossed the strait on Monday, down from seven on Sunday, according to shipping data cited by Reuters. No very large crude carriers or liquefied natural gas tankers were among them.

Shipping risk has also spread to the Red Sea. Yemen’s Iran-aligned Houthi movement declared a naval blockade against Saudi Arabia on Monday and warned shipping companies against using Saudi ports.

Two tankers carrying a combined 2.7 million barrels of Saudi crude for China and India then turned around in the Red Sea. A third vessel scheduled to load crude at Saudi Arabia’s Yanbu port also turned back, according to shipping data reported by Reuters.

Sending those cargoes through the Suez Canal and around Africa can add weeks to voyages. Indicative war-risk insurance premiums for ships using the Red Sea rose from about 0.3 per cent of a vessel’s value to 0.75 per cent after the Houthi announcement, adding hundreds of thousands of dollars to the cost of a seven-day voyage, according to insurance industry sources cited by Reuters.

For Jamaica, the risk is not limited to higher prices at the pump. Oil, freight, and insurance costs can feed into electricity, transportation, and the price of imported food, raw materials, and finished goods.

The July 15 information said near-term inflation would reflect higher energy and transportation costs, second-round price increases, higher taxi fares, and stronger demand tied to post-Hurricane Melissa reconstruction.

Annual inflation rose to 6.7 per cent in June from 5.5 per cent in May, moving above the upper limit of BOJ’s target. The bank expects the breach to be temporary, but that forecast assumes the conflict eases and oil supplies normalise. Events are moving in the opposite direction.

The same conflict threatens the recovery on which BOJ’s growth forecast rests. The central bank said a prolonged war could weaken tourism and related services. Higher imported costs and reduced purchasing power would also weigh on domestic activity.

The FPC statement is dated July 7 but was not posted on BOJ’s website until July 17. It referred to a United States-Iran peace deal and plans to de-escalate hostilities. Fighting resumed on July 7, and the statement was already overtaken by events when it was published 10 days later.

The committee did not ignore the risk. It warned that global uncertainty could weaken growth and borrowers’ ability to repay loans, while post-hurricane effects could increase insurers’ costs and market volatility could produce valuation losses across financial institutions.

It also said stress scenarios covering credit, liquidity, and market-risk shocks showed that financial subsectors generally had enough capital to withstand macro-financial stress.

But it disclosed no oil price assumption, conflict duration, projected fall in economic activity, exchange rate shock, increase in loan defaults, or post-stress capital and liquidity ratios.

The July 15 forecast does not fill that gap. It identifies an extended conflict as the main risk to inflation and a threat to growth, but does not say whether those conditions formed part of the financial system’s stress tests.

The FPC pointed to prudential indicators that remained within prescribed limits even as the economy contracted 4.1 per cent in the March quarter after Hurricane Melissa. Those indicators show the system’s position before the latest escalation; they do not reveal how much strain individual institutions can absorb if oil, shipping, and insurance costs remain elevated.

Diplomacy could still ease the pressure. Iran has received a proposal for a 10-day ceasefire aimed at reviving the interim agreement reached in June, and signs of renewed talks helped limit the rise in oil prices Tuesday.

No ceasefire had been agreed by Tuesday, and attacks continued while mediators sought to restart talks.

The FPC’s conclusion has not been disproved. But without the assumptions and results, the public cannot tell whether the system’s reported resilience extends to a longer war, sustained oil prices above US$90, weaker tourism, and simultaneous disruption of two major oil routes.