War in the Middle East: what are the economic consequences for the Caribbean?
The conflict in the Middle East, although far removed from our part of the world, is already having an impact on the Caribbean economy. Indeed, in island territories that are heavily reliant on imports, air transport and tourism, global tensions are, as always, leading to a rise in the cost of living.
On international markets, geopolitical tensions in the Middle East are fuelling concerns about energy supplies and the volatility of oil prices. However, according to regional and international economic organisations, island territories such as those in the Caribbean are among the most vulnerable to fluctuations in transport and import costs.
First impact: the price of airline tickets
The sudden surge in fuel prices, particularly for kerosene, as well as longer flight routes to bypass high-risk areas, have prompted several airlines to adjust their fares already. Air France-KLM has announced a €50 increase in economy class on long-haul flights and a €200 increase in business class for tickets issued from 11 March onwards. As for Air Caraïbes, whilst the exact amounts have not yet been disclosed, the airline stated last Thursday that it has revised part of its pricing structure, also for tickets issued from 11 March, but “in a measured manner, in line with changing market conditions and with a constant focus on maintaining the affordability of its services”. Some international airlines, meanwhile, are now applying “fuel surcharges”.
In practical terms, for flights to Saint-Martin / Sint Maarten, economy class tickets currently priced between €700 and €1,000 in the low season and around
€1,000 to €1,400 during school holidays and the high season will therefore cost between €1,050 and €1,450 from this summer… or even more if the crisis drags on.
Butterfly effect: rising cost of living
Beyond the cost of tickets, the situation is making tourists more cautious about their holiday plans between now and the end of the year. While the latest studies show that the first destinations to be affected are Egypt and Asia, and that French tourists might opt for the safer Caribbean, this is not certain for American customers… who are likely to err on the side of caution by limiting travel regardless of the destination. Tourism could therefore also be affected by these new behaviours and by the decline in visitors’ purchasing power.
But the impact could be even wider-reaching. Rising freight and import costs are likely to lead to increased costs for local businesses, which could be passed on to prices and, ultimately, affect employment. Furthermore, a tightening of credit or a slowdown in money supply could further weaken already vulnerable economies.
Thus, for Saint Martin, as for Guadeloupe and the rest of the Caribbean, the consequences of the conflict in the Middle East would be less linked to direct supply chains than to the indirect effects on international transport, tourism and the cost of living. This is yet another illustration of the island economies’ high exposure to international crises, whether geopolitical, health-related or climate-related. We can only hope that the conflict does not drag on… and that the US President’s talks with Cuba reach a favourable outcome, to avoid any conflict this time in the Caribbean region.
