The importance of diplomacy and economic geography

2026-03-29 - 01:25

Trinidad and Tobago may be geographically distant from the current military hot spots of Ukraine and the Middle East, but globalisation has ensured that we experience the knock-on effects of war. Russia’s invasion of Ukraine had a profound impact on the world energy market, raising prices for a short period. The resulting rise in energy prices helped to rescue T&T from an eight-year-long economic depression as increased revenue from petrochemical and LNG exports improved this country’s economic performance, though it did not reverse the underlying structural problems. At the time, Russia accounted for approximately seven per cent of the world’s energy supply. However, the Gulf states and the Hormuz Strait account for a far larger share of the world’s energy supply. Further, the war in the Middle East has proven more destructive to energy infrastructure than the war in Ukraine. Therefore, the effect of the hostilities in the Middle East is likely to be far more significant. The “energy price shock” from the Middle East is likely to persist even if the hostilities last only a few more weeks. There is already significant damage to energy-producing assets, which will take years, not months, to repair or replace. The betting odds are that this will also increase global inflation and could induce stagnating economic conditions. This will create challenges for regional economies and governments in the Caribbean. Energy costs have a major impact on tourism and domestic inflation. The difficulty for T&T is its declining natural gas production, which limits the benefit of increased international prices. Also, while export prices are increasing, so are shipping rates and insurance, reducing profitability coming from increased energy prices. Shell’s Manatee project is the major development on schedule to capture the tail end of this windfall, depending on the extent of damage to the Middle East’s energy-producing infrastructure. However, an energy windfall will not solve Trinidad and Tobago’s economic issues. Oil and gas are wasting assets, and new gas supplies are urgently required from new exploration efforts or otherwise. Productivity remains low, violent crime remains high, diversification efforts are limited, foreign exchange remains scarce and Government’s fiscal position is weakened as it struggles to address payroll increases stemming from public sector wage negotiations. These are significant challenges which cannot be solved by monetary resources alone. History has shown that the benefits from Middle East crises do not last forever. It provides a breathing space to build a stronger economic base, not dependent on hydrocarbon windfalls from crises. Dependence on windfall gains is not a sustainable path. In this context, the recent forum between the Government and the Trinidad and Tobago Manufacturers Association raised some critical questions. Despite the new foreign policy orientation towards the United States, Caricom remains a reliable and important market with a huge trade surplus, which benefits T&T. Finance Minister Davendranath Tancoo was positive when he said the current global market surge is a “short-term blip” that requires careful balancing. The Central Bank indicated that the foreign exchange shortage is not caused by allocation problems but by a decline in export earnings. Trinidad and Tobago must export more. Geography has determined that our relationship with Caricom, and Venezuela is a long-term one that must survive short-term tensions. Caricom has provided a reliable foundation for expanding exports. Even if T&T looks to export markets elsewhere, this relationship must be handled with delicacy and professionalism.