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In 2020, Jamaica made a gamble against renewing its oil hedge subscription. 

It’s a bet that now proves to be economically fatal. The move was regarded as a strategic imperative and widely defended as prudent crisis management as oil prices had collapsed amid the COVID‑19 pandemic, demand was anaemic, and government revenues were under strain. At the time, Finance Minister Dr Nigel Clarke cautioned that locking in prices earlier would have been costly, noting that “had we transacted based on prices a few weeks ago, we would have regretted it today.”

His position was supported by the independent Central Bank. In a Jamaica Gleaner (2020) article, the Bank of Jamaica noted that “Following a comprehensive assessment that explored various options and scenarios, … renewing the oil hedge programme would not be feasible, particularly in a context where the returns are highly variable and uncertain.”

But did they both get it wrong? Isn’t an oil hedge like a CAT Bond Insurance? 

While that reasoning made sense in 2020, the world has since changed and so have the risks. Global oil markets have returned to their familiar pattern of extreme volatility. Brent Crude and West Texas Intermediate (WTI) prices have surged repeatedly over the past few years, driven by geopolitical conflict, supply disruptions, and production controls. For a developing economy that imports nearly all its energy needs, price spikes invariably ripple quickly through the economy in the form of higher electricity bills, rising transportation costs, and persistent inflationary pressure. When the market sneeze, Jamaica catches the cold. This is precisely the kind of risk hedging is designed to deal with. 

Energy economists are clear on the point that oil hedging is not about predicting prices; it is about managing exposure. As commodity‑risk expert Dr Philippe Chalmin has long argued, hedging “does not lower costs in the long run, but it reduces variability and variability is what cripples planning, investment, and productivity.” The International Monetary Fund has made similar observations, noting that for small, import‑dependent economies, price stability can be as economically valuable as price reductions. The Oil hedge was that insurance. 

Jamaica already understands this principle. In 2021, the country issued a catastrophe bond (CAT Bond) to insure against hurricanes and earthquakes, hailed as a pioneering move for the Caribbean. The logic was straightforward: while disasters are unpredictable, their economic impact can be catastrophic. When hurricane Melissa struck in late 2025, it was a combined insurance (CCRIF SPC & World Bank) payout of some US$241.9 million that provided real time economic cushion, stabilised public finances, and allowed faster recovery, when the country’s GDP plummeted. Insurance cushioned the blow. The obvious question, then, is if Jamaica insures against natural disasters that may occur once every few years, why does it not insure oil, the lifeblood that powers the economy? 

The Opposition’s Role: Calling for removal, then warning of exposure

Unprincipled positions ought to be examined for what they are.  This tension between removing the cost of hedging and retaining protection against volatility sits at the heart of today’s policy dilemma. Ironically, this exposure was something the Opposition People’s National Party (PNP) once warned against. In 2018, then Opposition spokesman on finance Mark Golding cautioned that Jamaica could be “heading for choppy waters” as oil prices rose without the protection of an active hedge, warning that the country had been left “fully exposed to a very unstable geo‑political climate.” 

Yet, during the period of low oil prices, the Opposition took a different tone. The hedge‑related tax became a focal point of public criticism, with calls for its removal intensifying as consumers struggled with high fuel and electricity prices despite the absence of an active hedge. Opposition spokesman on energy Phillip Paulwell was particularly vocal. In 2020 and again in 2021, he described the maintenance of hedge‑related charges as “unfair and unconscionable,” arguing that Jamaicans were paying for insurance that no longer existed and urging that the levy be returned to consumers. Both arguments were politically resonant. But they highlight a deeper policy contradiction: the cost of hedging is unpopular when prices are low, but the absence of hedging becomes costly when prices rise. That contradiction is now playing out in real time. Oil hedging is not a speculative exercise; it is a form of economic insurance.

Countries and corporations hedge not because they can predict oil prices, but because they cannot. The value lies in certainty. Stable and predictable energy costs make budgeting easier for governments, planning more reliable for businesses, and price shocks less damaging for households. Since the oil hedge was discontinued, global energy markets have experienced repeated shocks due to the Russia‑Ukraine war, supply chain disruptions, OPEC production decisions and now the IRAN Vs. Israel/USA War. For our open economy, every price spike feeds directly into higher electricity bills, increased transportation and food bills, inflationary pressures and other fiscal disruptions. The solution therefore, is not to abandon hedging, but to redesign it.

A Smarter Model for Reintroducing the Oil Hedge

Experts suggest that Jamaica could adopt a limited, transparent, and rules‑based hedging model, drawing on international best practice such as: 

1. Partial Coverage, where only a portion of the annual oil imports would cap exposure without excessive premiums.
2. Clear Governance and Disclosure by implementing a joint BOJ/Ministry of Finance framework with mandatory public reporting, similar to the CAT Bond structure.
3. Introduce a Counter‑cyclical Design in which hedging can be activated or expanded during periods of heightened geopolitical risk rather than attempting to time the absolute bottom of the market.

Countries such as Mexico have demonstrated that disciplined hedging can save billions during oil shocks. Airlines and utilities across the world hedge fuel costs not to beat markets, but to survive them. Oil exploration in Jamaica’s Walton and Morant basins offers long‑term hope. But exploration is uncertain and slow. Until oil is commercially produced, if ever, Jamaica remains a price taker in a volatile global market. Our Caricom brother, Guyana, now sits on the opposite side of the equation. With oil production expanding rapidly, higher global prices strengthen its balance of payments and fiscal position. Jamaica, by contrast, faces deteriorating trade balances during price surges, making risk management, not wishful thinking, the rational response. It is about time for new interregional relations on the oil trade. 

So, while the cancellation of the oil hedge in 2020 may have been justified by exceptional circumstances, policy must adapt to reality, not memory. Jamaica has already accepted insurance as a sound economic strategy through its CAT Bond. Applying the same logic to oil is not ideological; it is pragmatic. Until the land of wood and water adds oil to its production possibility frontier, ensuring the fuel that drives the economy is not a luxury; it is responsible governance. 

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Clinton Rattray is a graduate of the UWI with a Bachelor’s Degree in International Relations and a MSc candidate, Governance and Public Policy at Sir Arthur Lewis Institute of Social & Economic Studies (SALISES).