A 1970s-style shock—but not a 1970s-style crisis

When the Iran war first erupted, I initially viewed it through the lens of recent history—expecting a familiar “price spike and fade” similar to the 1990 Gulf War, the 2003 Iraq War or even the 2022 Russia–Ukraine conflict.

In those episodes, oil prices surged but fell back quickly, and supply remained available to those willing to pay.

However, the deeper I look into the mechanics of the current crisis, the more it begins to resemble the structural shocks of the 1970s.

The key difference is the magnitude and nature of the disruption.

In the 1970s, the Arab oil embargo and the Iranian Revolution removed roughly 7 percent to 8 percent of global supply—significantly larger than the 2-percent to 3-percent disruption seen during the Iraq and Russia–Ukraine conflicts. While the 1990 Gulf War saw a comparable 6.5-percent supply shock, it was quickly offset by a surge in Saudi production.

Today, however, the issue is not just supply—it is access.

The disruption to the Strait of Hormuz places at risk nearly 20 percent of global oil flows.

More importantly, we are facing a logistical constraint.

Even if neighboring Middle Eastern countries ramp up production, they simply do not have enough pipeline capacity to bypass Hormuz. This creates a bottleneck that cannot be resolved quickly.

As a result, instead of a sharp spike followed by a rapid decline, oil prices could remain elevated for longer—raising the risk of physical shortages and even rationing, something we have not seen in decades.

That said, the Philippines today is in a far stronger position to absorb this shock compared to the 1970s, which ultimately culminated in the 1983 economic collapse.

Back then, the country borrowed heavily in US dollars to finance rising oil imports, operating under the assumption that interest rates would remain low.

When the second oil shock hit in 1979, global interest rates surged.

With most of our debt short-term and floating-rate, we were hit on both fronts—we were paying significantly more for oil and significantly more for debt. By 1983, the country effectively ran out of dollars.

To stabilize the system, the Central Bank issued the now-infamous “Jobo Bills,” with interest rates soaring to as high as 40 percent. Credit dried up, businesses shut down and the economy contracted sharply. At the same time, the peso depreciated from 8 vs the US dollar in 1981 to nearly 19:$1 by 1985—a roughly 140-percent decline in just four years.

Today, the picture is very different.

First, liquidity is much stronger.

Gross International Reserves stand at around $113.3 billion, equivalent to around seven months of imports. In the 1970s, the country had barely two months of cover.

Second, the economy is more structurally diversified.

In the 1970s, Philippine exports were dominated by commodities such as sugar, coconut products, copper and logs—making the economy highly vulnerable to both global price swings and rising energy and shipping costs.

Today, growth is driven by the IT-BPM sector and OFW remittances. These service exports are far more resilient and less exposed to oil price volatility.

Third, while our debt-to-GDP (gross domestic product) ratio remains elevated at around 63 percent, the composition is far more manageable.

Only about 20 percent to 25 percent of debt is foreign currency-denominated. More importantly, 91 percent is at fixed interest rates and 81 percent is long-term. This significantly reduces vulnerability to both currency depreciation and rising global rates.

In the near term, higher fuel prices—and even the risk of rationing—cannot be ruled out. But a repeat of the 1970s-style economic collapse, marked by runaway inflation, a currency crisis and a spike in interest rates, is far less likely.

We may bend under the pressure of this shock, but with stronger buffers, a more resilient economic structure and better-managed debt, the Philippines today is far better equipped to withstand it—without breaking.