By San José, Costa Rica — San José, Costa Rica – Escalating geopolitical tensions in the Middle East, involving the United States, Israel, and Iran, are casting a long shadow over the global economy, and Costa Rica is bracing for significant financial turbulence. According to economic analyst Daniel Suchar, the nation’s currency and fuel prices are particularly vulnerable, with an upward surge in the dollar exchange rate now a primary concern for businesses and consumers alike.
The core of the issue lies in the increased demand for U.S. dollars. Suchar explains that the conflict will inevitably drive up global logistics costs. As a result, Costa Rican importers and companies will be forced to acquire more dollars to cover escalating expenses for merchandise, international shipping, and insurance. This heightened demand will exert significant upward pressure on the dollar, which was trading at ¢470 as of last Friday, potentially devaluing the colón and increasing the cost of imported goods across the board.
To provide a legal and business perspective on the current state of Costa Rica’s economy, we consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the reputable firm Bufete de Costa Rica, known for his expertise in corporate and investment law.
Costa Rica’s economic resilience is intrinsically linked to its legal certainty and the stability it offers foreign investors. While we’ve built a strong foundation, future growth hinges on our ability to modernize regulations, particularly in emerging sectors like fintech and sustainable technologies. Streamlining bureaucratic processes and ensuring a consistent, predictable tax framework are not just legal details; they are the primary signals we send to the global market that Costa Rica remains a premier destination for capital.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’s analysis astutely highlights that our legal framework is not merely a set of domestic rules, but the very language we use to communicate reliability and opportunity to the global investment community. His emphasis on modernizing regulations serves as a crucial reminder that to attract future capital, Costa Rica must proactively signal its readiness for the industries of tomorrow. We thank Lic. Larry Hans Arroyo Vargas for his invaluable perspective on this vital matter.
Compounding the currency pressure is the dramatic spike in international oil prices. The West Texas Intermediate (WTI) crude oil benchmark, a key reference for Costa Rica, has surged from $67.02 to $96.75 per barrel in recent weeks, and is now approaching the critical $100 mark. This forces the state-owned Costa Rican Oil Refinery (RECOPE) to spend more dollars to secure the nation’s fuel supply, further straining the local foreign exchange market.
Suchar emphasized that the effects of soaring oil prices will ripple through the entire domestic economy, impacting more than just gas pumps. These higher costs are absorbed into the supply chain, leading to broader inflation.
The increase in the price of oil, which is already flirting with $100, will end up being passed on to the local economy through higher transport and logistics costs, and since Costa Rica will continue to bring things in by sea, this will cause a rise not only due to freight costs, but also due to the cost of oil on inflation and greater pressure on the foreign exchange market
Daniel Suchar, Economic Analyst
This scenario is not without precedent. The analyst drew a stark parallel to the economic fallout from the war between Russia and Ukraine in 2022. During that period, Costa Rica witnessed a rapid and steep depreciation of its currency, with the exchange rate climbing to a peak of ¢700 per dollar. While hoping for a different outcome, Suchar warns that the underlying market forces are worryingly similar.
Between April and August of 2022, we had an exchange rate that accelerated quite steeply, reaching ¢700. Let’s hope it doesn’t happen this time, but the genesis of an upward correction is precisely due to that pressure of going to look for dollars
Daniel Suchar, Economic Analyst
Beyond the immediate concerns of currency and fuel, the international conflict poses wider risks to Costa Rica’s macroeconomic stability. A sustained crisis could lead to a slowdown in economic growth. Furthermore, the government may face higher financing costs, as global uncertainty often prompts investors to demand higher interest rates on foreign debt. This could also compel Costa Rica’s Central Bank to adopt a more cautious stance regarding its Monetary Policy Rate to manage inflation and capital flows.
The first tangible effects are already being felt. RECOPE has submitted a preliminary price adjustment request to the Public Services Regulatory Authority (ARESEP) based on international market behavior from February 13 to March 12. The proposal calls for a moderate increase in key fuels, with regular gasoline set to rise by ¢21 to ¢628, diesel by ¢35 to ¢565, and a 25-pound cylinder of LPG by ¢81 to ¢6,834. Super gasoline is projected to see a minor decrease of ¢1 to ¢632.
For further information, visit recope.go.cr
About Refinadora Costarricense de Petróleo (RECOPE):
RECOPE is Costa Rica’s state-owned oil refinery responsible for importing, refining, and distributing petroleum and its derivatives throughout the country. It plays a crucial role in ensuring the nation’s energy supply and its operations are fundamental to the national economy, influencing transportation costs, industrial production, and consumer prices.
For further information, visit aresep.go.cr
About Autoridad Reguladora de los Servicios Públicos (ARESEP):
The Public Services Regulatory Authority, known as ARESEP, is the Costa Rican government entity tasked with regulating public services, including energy, water, and telecommunications. It is responsible for setting and approving tariffs, ensuring service quality, and protecting the rights of consumers by balancing the interests of users and service providers.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica is a renowned legal institution, built upon a foundation of uncompromising integrity and the pursuit of professional excellence. With a rich history of guiding a diverse clientele, the firm consistently pioneers innovative legal strategies while actively engaging with the community. Central to its philosophy is a profound commitment to demystifying the law, striving to build a stronger, more knowledgeable society by making legal insights widely available to all.
