Mar­i­ano Browne

Rad­i­cal Un­cer­tain­ty is the ti­tle of a book au­thored by two Eng­lish econ­o­mists, Sir John Hay and Mervyn King, a for­mer Gov­er­nor of the Bank of Eng­land. The book fo­cus­es on us­ing quan­ti­ta­tive mod­els, big da­ta, and al­go­rith­mic pre­dic­tions in eco­nom­ics, fi­nance, and pub­lic pol­i­cy. The au­thors ar­gue that the cur­rent ten­den­cy to use sta­tis­ti­cal prob­a­bil­i­ty mod­els to project out­comes may work well for small sys­tems but fails when ap­plied to the messy, non-lin­ear re­al­i­ties of hu­man his­to­ry, eco­nom­ics, and ma­jor life choic­es.

The book’s cen­tral the­sis is that pol­i­cy­mak­ers must dis­tin­guish be­tween what can be cal­cu­lat­ed and what can­not. It de­fines these two sit­u­a­tions as re­solv­able un­cer­tain­ty and rad­i­cal un­cer­tain­ty. Re­solv­able un­cer­tain­ty refers to sit­u­a­tions where all out­comes can be iden­ti­fied, such as the prob­a­bil­i­ty of win­ning the lot­tery or toss­ing a coin. Rad­i­cal un­cer­tain­ty refers to sit­u­a­tions where we nei­ther know what will hap­pen nor the prob­a­bil­i­ty of its oc­cur­rence.

For­mer US De­fence Sec­re­tary Don­ald Rums­feld, dur­ing a De­part­ment of De­fence news brief­ing on Feb­ru­ary 12, 2002, dis­tin­guished be­tween “the known un­knowns,” sit­u­a­tions where one knows there are in­for­ma­tion gaps, and “un­known un­knowns,” or sit­u­a­tions where we do not know what we do not know. “Un­known un­knowns” are the equiv­a­lent of rad­i­cal un­cer­tain­ty. Ex­am­ples in­clude pre­dict­ing the ex­act time­line of a glob­al pan­dem­ic, geopo­lit­i­cal con­flicts, or a sud­den fi­nan­cial crash.

The key point is that we live in a world of com­plex sit­u­a­tions that re­quire us to make de­ci­sions with in­ad­e­quate da­ta, where the “cor­rect” de­ci­sion may not be ob­vi­ous. We may know the re­sult we want, but we may not be able to achieve it giv­en the con­text.

A good ex­am­ple is Trinidad and To­ba­go’s gas sit­u­a­tion. Ex­ist­ing plants need an op­ti­mal pro­duc­tion of 4 bil­lion cu­bic feet a day (bcfd) to op­er­ate at max­i­mum ca­pac­i­ty. Av­er­age dai­ly pro­duc­tion for the first three months of this year is 2.443 bcf/d, a 39% short­fall from this tar­get.

More ex­plo­ration is nec­es­sary, but as bpTT’s Pres­i­dent notes, these projects must be “cap­i­tal ef­fi­cient… and ex­pect­ed re­turns from up­stream projects ful­ly ac­com­mo­dat­ed with­in bp’s cap­i­tal ex­pen­di­ture plans.” The same is true for Shell. Trinidad and To­ba­go has no con­trol or in­put in­to these ex­pen­di­ture de­ci­sions. Venezuela’s gas fields are the oth­er ob­vi­ous source of gas.

Projects in T&T wa­ters, Man­a­tee (Shell), Gin­ger (bpTT) and Aphrodite (Shell), will con­tribute about 1.0 bcf/d (re­spec­tive­ly 600, 300 and 100 mil­lion cu­bic feet dai­ly (mm­cf/d)) when these projects are com­plet­ed.

On­ly the Gin­ger project is ex­pect­ed to come on­line in time for the 2027 fis­cal year, which runs from Oc­to­ber 2026 to Sep­tem­ber 2027. These projects are known; the un­knowns are whether they will stay with­in the pro­ject­ed time­lines and the ex­tent of the de­clines in pro­duc­ing fields.

The Venezuela gas fields have greater un­cer­tain­ty. The Drag­on gas field is es­ti­mat­ed at 4.2 tril­lion cu­bic feet with an ex­pect­ed yield of 350 mil­lion mm­cf/d. While ear­ly-stage ge­ot­ech­ni­cal and en­vi­ron­men­tal sur­veys are com­plete, Shell has not yet sanc­tioned its of­fi­cial Fi­nal In­vest­ment De­ci­sion (FID) for the 4.2-tcf Drag­on project. The project con­tin­ues to nav­i­gate geopo­lit­i­cal risks. Fol­low­ing ear­li­er dis­rup­tions, the US Trea­sury’s Of­fice of For­eign As­sets Con­trol (OFAC) is­sued up­dat­ed au­tho­ri­sa­tions al­low­ing Shell to safe­ly ad­vance the project with­out vi­o­lat­ing in­ter­na­tion­al sanc­tions.

The Lo­ran Phase 1 gives Shell alone the rights to de­vel­op 1.7 tcf. Ac­cord­ing to the En­er­gy Cham­ber, Shell has the rights to ex­port gas pro­duced from the Venezue­lan side di­rect­ly in­to Trinidad and To­ba­go to sup­ply the coun­try’s do­mes­tic grid and At­lantic LNG in­fra­struc­ture for glob­al ex­port.

Like the Drag­on project, be­fore Shell can of­fi­cial­ly de­clare a mul­ti-bil­lion-dol­lar FID on Lo­ran Phase 1, it must se­cure long-term, mul­ti-year sanc­tions clar­i­ty from the US Of­fice of For­eign As­sets Con­trol (OFAC) to guar­an­tee fi­nan­cial op­er­a­tions in Venezue­lan wa­ters with­out dis­rup­tion. The ar­ti­cle pro­vides no de­tails on pric­ing or the na­ture of the pro­cess­ing agree­ment.

These de­vel­op­ments should pos­i­tive­ly im­pact the T&T econ­o­my. How­ev­er, the dev­il is in the de­tails, es­pe­cial­ly the trans­fer pric­ing arrange­ments. Events else­where will af­fect T&T’s eco­nom­ic po­si­tion.

In the Mid­dle East, Unit­ed States at­tacks on Iran are es­ca­lat­ing. Iran’s al­lies, the Houthis, have gained ground, ad­vanc­ing along Red Sea coastal ar­eas bor­der­ing the strate­gic Bab el-Man­deb Strait and dam­ag­ing Sau­di re­fin­ing as­sets.

As a re­sult, oil prices surged past USD 100 this week due to fears of deep­er sup­ply dis­rup­tions. This has sig­nif­i­cant im­pli­ca­tions for in­fla­tion, bond mar­kets, and con­sumer sen­ti­ment.

Cen­tral Banks in OECD coun­tries are ex­pect­ed to raise rates to de­press de­mand and in­fla­tion. This means debt-ser­vice re­quire­ments for high­ly in­debt­ed coun­tries will rise, af­fect­ing what can be spent on de­vel­op­ment ob­jec­tives. Ris­ing oil prices and ris­ing fer­tilis­er prices af­fect trans­porta­tion costs and food pro­duc­tion.

Drought con­di­tions caused by a very dif­fi­cult El Niño have sig­nif­i­cant im­pli­ca­tions for food se­cu­ri­ty. These are grave com­pli­ca­tions made worse by a US pres­i­dent who, in the words of British colum­nist Si­mon Jenk­ins, is “a pres­i­dent ready to an­nex for­eign coun­tries, in­vade oth­ers, dis­rupt world trade with ag­gres­sive tar­iffs and de­fy in­ter­na­tion­al law.”

The key point is that we must se­cure our own place in the world. No one is com­ing to res­cue us. That means we must adopt sen­si­ble poli­cies that fit the ex­ist­ing con­text. Above all else, we must man­age our ex­pen­di­ture and the size of the fis­cal deficit.

Mar­i­ano Browne is the chief ex­ec­u­tive of­fi­cer of The UWI Arthur Lok Jack Glob­al School