Caribbean & Central America - April 2026

Higher energy prices due to the fallout from the conflict in the Middle East have had a significant effect on Central American economies, which are very reliant on imported fuels and therefore highly exposed to external energy shocks. 

Governments throughout the region are facing the same dilemma in choosing who has to pick up the bill: if the government subsidises fuel prices it places extra strain on already stretched public finances, but leaving consumers to pay the market price stokes discontent among voters and impacts approval ratings. Officials will be hoping that the war comes to a swift end, with any settlement allowing ships to pass through the strategic Strait of Hormuz as quickly and easily as before, which would allow energy prices to fall again. The longer it takes for shipping to regain its previous rhythm, the worse things will get for Central America – as elsewhere. Potential knock-on effects include higher food prices, anti-government protests, and an uptick in the poverty rate in countries that decided not to introduce subsidies, or widening fiscal deficits that affect public spending and economic development in those that did. 

In Honduras, where a recent spike has led to some of the most expensive petrol and diesel prices in the region, President Nasry Asfura of the conservative Partido Nacional (PN) announced a raft of measures on 14 March. These include plans for the government to assume the cost of 50% of the increase in fuel prices, a 10% discount in purchases made with the national supplier of basic products (Banasupro), a government-run entity which seeks to address food insecurity and ensure price stability for essential goods, and remote working for non-essential government officials. The aim is to reduce the impact on the cost of basic goods and services such as public transport, according to Finance Minister Emilio Hércules.

• Cost

On 17 March, Honduras’ finance minister, Emilio Hércules, was cited by the local media as saying that it was costing around L126m lempiras (US$4.74m) per week to pay for 50% of the increase in fuel prices, adding that he hoped that prices would start to come down so that other spending plans didn’t have to be curtailed.

In Guatemala, government officials have voiced concerns around price speculation among fuel vendors, and it has stepped up monitoring using the police and the army under the umbrella of the ‘Plan Centinela’ security programme. President Bernardo Arévalo has warned that some increase in prices is justified, but his government will continue to clamp down on speculation. In congress, legislators from Arévalo’s Semilla party have proposed a temporary direct subsidy, but the need for an associated budget increase sparked some disquiet among opposition lawmakers, who would prefer to suspend fuel taxes. 

For its part, Nicaragua has maintained a price freeze for petrol, diesel, and cooking gas since 2022, when the Russian invasion of Ukraine caused a similar spike in energy prices. On 23 March José Antonio Castañeda, executive president of the country’s energy institute (INE), confirmed that the subsidies would remain in place despite the recent increases. According to Castañeda, the price freeze has helped to insulate households and supply chains from the effects of external shocks. However, prices were frozen at a time when oil was at US$120 per barrel, meaning that consumers have been paying way over the odds in recent years.

As of 1 April, oil prices have not hit this level since the start of the war in the Middle East, meaning that the Nicaraguan government is able to claim a political win while unwitting consumers continue to pay more than the market price for fuel. This may change if the Strait of Hormuz remains closed and oil prices increase further, forcing the government to choose whether to risk protests if it removes the price cap or to take the financial hit of paying a subsidy.

As for Panama, President José Raúl Mulino said that there would be no government subsidies at a press conference on 5 March, but he quickly changed tack. On 25 March, the government announced caps on residential electricity rates, public transport fares, and cooking gas prices, and then it announced a temporary price freeze for petrol and diesel on 31 March. Finance Minister Felipe Chapman said that the measure could be in place for up to 10 months, although it could be lifted sooner if conditions allow. “This measure implies extra public spending of US$15m per month,” he said, promising that capital spending would not be affected.

On the other hand, the government of El Salvador hasn’t announced fuel subsidies, likely due to continued difficulties in managing public finances and the need to conform with the terms of a financing agreement with the International Monetary Fund (IMF). The country’s authoritarian president, Nayib Bukele, may also have calculated that the lack of political opposition, and the continuation of a state of emergency that has severely restricted civil rights, means that his government is well-placed to ride out any discontent around higher fuel prices. In Costa Rica, prices have risen but, at the time of writing, the government had not announced any measures to contain the impact, which has been mitigated by the fact that the country generates almost all of its electricity from renewables.

With the region so heavily reliant on imported fuel, there isn’t really any way to escape the negative effects of the energy shock. Passing price increases on to households and local businesses means higher costs for everything from transport to manufacturing, stoking inflation as price increases cascade through the economy. It also means a hit to living standards, which can push lower income households below the poverty line, increasing the risk of protests and social unrest in the short- and medium-term. 

Alternatively, governments that choose to absorb all or part of the fuel price increases insulate consumers and businesses from the short-term impact at the petrol station, but they cannot head off increased prices of other imported goods and manufacturing inputs, meaning that inflation eventually increases anyway. This approach also incurs a steadily mounting cost to the public purse, leaving less room for the kind of social spending that voters tend to demand in the face of eroding living standards due to high inflation. 

Each government in the region is responding to its own individual set of considerations when deciding how to respond to the energy price shock caused by conflict in the Middle East, but none of them are likely to be able to escape the long-term consequences: higher inflation and higher borrowing costs that slow investment and economic growth, as well as poorer and more discontented voters that are more receptive to protest movements and political opponents.

Costa Rica hails high percentage of renewable energy generation

On 27 February Costa Rica’s state electricity firm Instituto Costarricense de Electricidad (ICE) announced that 98.6% of the country’s electricity needs were met by renewable sources in 2025.

Costa Rica uses hydro, geothermal, wind, biomass, and solar generation, and the proper use and administration of these resources allows ICE to offer stable prices, said Marco Acuña, president of ICE, in a statement. “In the face of operational and climatic challenges, Costa Rica is consolidating its position as a reference point in renewable generation,” he added.

A further 600MW in renewable generating capacity is set to be added to the grid by 2030, further diversifying supply and increasing energy security.

The next challenge is to decarbonise other key sectors, such as transport, which still relies on fossil fuels and is therefore vulnerable to the aforementioned increases in the price of petrol and diesel.