OPEC Fund Quarterly - 2026 Q3

THE FERTILIZER CRUNCH SIDS

FROM CLIMATE TO CONFLICT SMALL ISLAND DEVELOPING STATES AGAIN PAY THE PRICE Immediate help is necessary – led by grants, concessional financing and knowledge transfers By Angus Downie, OPEC Fund D espite a fragile truce between Iran and the US, the war has

Caribbean SIDS Almost all Caribbean SIDS are net importers of oil, gas, fertilizers and petrochemicals, with energy inputs critical for electricity generation, transport, tourism and food distribution. Higher oil prices directly widen merchandise trade deficits, while higher shipping and petrochemical costs raise import values across food and manufactured goods, weakening current accounts and overall balances of payments. Fiscal balances deteriorate as governments expand fuel subsidies, cap electricity tariffs or increase social transfers to cushion households, repeating patterns observed during earlier commodity spikes caused by the war in Ukraine. However, while these measures help stabilize economies in the short term, over the following years the costs can become severe: primary fiscal deficits (i.e. before interest payments are factored in) can widen, debt stocks can increase and debt servicing can become more difficult. Fiscal-debt pressures are already rising in some Caribbean states. Inflation effects are pronounced. The food and energy inflation pass‑through effect in SIDS is larger and more volatile than in other developing economies, while Caribbean consumer baskets (i.e. typical purchases) are particularly energy‑ and food‑intensive. As a result, several central banks face a delicate trade‑off between supporting post‑pandemic tourism recovery (by

keeping interest rates low to support credit for rebuilding and investing) and anchoring inflation expectations (by raising rates to prevent price spirals becoming entrenched). On balance, the impact on economic growth appears mixed but negative. Higher travel and operating costs squeeze tourism margins, just as household real incomes fall. While some energy‑exporting Caribbean economies (e.g. Trinidad & Tobago) gain from higher hydrocarbon prices, the region overall experiences weaker growth as financial resources are diverted to pay for higher fuel, food, transport and other goods – money that could rather have been invested in productive efforts. Exchange rates also tend to come under depreciation pressure in non‑pegged regimes (including Jamaica, Guyana and Suriname), particularly where foreign exchange reserve buffers are thin, reinforcing imported inflation. Pacific SIDS Pacific SIDS face even greater exposure due to extreme remoteness (particularly Fiji, Samoa and Tonga, but all other island nations are affected too), and a heavy reliance on imported diesel for power and transport (especially vast inter-island distances – a unique characteristic of Pacific SIDS). Higher oil and shipping costs significantly raise the landed cost of all imports, amplifying the terms‑of‑trade shock. The current account impact is severe:

caused global energy, fertilizer and petrochemical price shocks – driven by shipping disruptions through the Strait of Hormuz, along with damage to regional energy infrastructure. The IMF and World Bank stress that commodity-importing developing economies face the largest macroeconomic spillovers. These come in the form of higher oil, gas, fertilizer and food prices, tighter financial conditions and currency pressures. Second‑round fuel and food price effects have become the main drivers of inflation.

When we look specifically at small island developing states

(SIDS), we see how these price shocks feed into domestic inflation – reflecting their high import dependence, small market size and limited scope for substitution. Sustained disruption in Hormuz could keep oil prices structurally elevated throughout 2026, even with a partial normalization of energy production and exports. That in turn raises the risks for SIDS that are still dealing with the after-effects of natural disasters, the earlier price shock from the war in Ukraine, along with the lingering disruptions of the COVID-19 pandemic. We look at how the three main regions have fared, along with the outlook in the face of lingering uncertainty.