A sharp rise in oil prices following Middle East conflict has triggered a selloff in Caribbean sovereign debt, with Barbados, El Salvador, and Dominican Republic bonds losing over 2.5% since late February. Tourism-dependent economies in the region are particularly vulnerable as higher jet fuel costs threaten to reduce travel demand and pressure government finances.

Tourism accounts for over 22% of Caribbean GDP, making the region especially sensitive to fuel price shocks. Countries like Jamaica face oil trade deficits equal to nearly 7% of GDP, while Barbados, El Salvador, and the Bahamas exceed 4.5%. The situation has worsened as Brent crude topped $103 per barrel, up from recent lows.

While fiscal improvements in recent years have cushioned the blow so far, investors worry about prolonged $100+ oil prices. The key question is whether governments will implement fuel subsidies to protect consumers, potentially straining public finances. Panama has ruled out subsidies while the Bahamas plans to maintain stable electricity prices. Analysts warn that extended high oil prices could quickly deteriorate the outlook for Caribbean and Central American credits.