Contingencies for Middle East war
Just when the Philippine economy was starting to gain some growth momentum after being laid low by the flood control corruption scandal in the second half of last year, it is facing another potential body blow if the latest crisis in the Middle East escalates further and takes longer to be resolved.
Over the weekend, the United States and Israel launched an attack on Iran, which immediately retaliated by firing missiles and drones across the Middle East, including Qatar, Bahrain, Jordan, United Arab Emirates, and Kuwait with American installations and threatening to drive up global oil prices.
The repercussions of the attacks and counterattacks that show no sign of ending anytime soon are being keenly felt across the globe in the form of surging oil prices, gyrating stock markets, and disrupted movement of people and goods.
The extent of the potential impact on the Philippines cannot be underestimated.
According to Nomura Global Markets Research, the Philippines is one of the countries in Asia that are most vulnerable to global oil swings, along with Thailand, India, and South Korea.
Humanitarian crisis
It estimated that every 10-percent hike in global oil prices would accelerate local inflation by half a percentage point.
Higher price hikes will in turn lead to higher prices of all other goods such as food and services such as transportation, thus weighing down on crucial growth drivers such as household consumption and then trim economic expansion by about 0.07 percentage point.
Michael Wan, senior currency analyst of MUFG Global Markets Research, identified the peso as one of the currencies in Asia that are “more vulnerable” to oil price shocks and that may in turn dissuade the Bangko Sentral ng Pilipinas from further interest rate cuts thus depriving the sluggish local economy of a shot in the arm.
MUFG predicts that the peso may sink past the 59 levels against the US dollar if global crude goes up to $90 a barrel and stays there for an extended period.
Then there is the issue of the potential humanitarian crisis as the Middle East is home to over 2 million Filipino overseas workers who last year sent a combined $6.5 billion, about 18 percent of total remittances, a key source of foreign exchange.
Also, the airports in the region, from Dubai and Abu Dhabi in the UAE to Doha in Qatar are vital hubs that connect Filipino individuals and businesses to Europe and Africa.
Emergency legislation
The Philippine Exporters Confederation Inc. likewise pointed out that the Middle East is an important market for Philippine food products, construction materials, and services thus the airport closures and transport disruptions along sea lanes will raise logistics costs and dampen exporters’ already stretched ability to send out their products at the lowest possible cost.
That the Philippines is highly exposed to the adverse effects of this latest crisis in the restive region thus makes it an absolute imperative for the Marcos administration to have the contingencies in place ready to be activated to respond to worst case scenarios.
President Marcos has recognized the urgency of the situation and has ordered agencies such as the Department of Migrant Workers, Department of Foreign Affairs, and even the Department of National Defense to coordinate and work together to ensure the repatriation and protection of Filipinos in the region.
He has also asked for emergency legislation that will allow him to reduce the excise tax on petroleum products should Dubai crude exceed $80 a barrel, which is not far-off from current levels of around $73. Suspending the excise tax can bring down diesel and gasoline prices by P6 to P10 per liter, an industry source said.
Not just a distant conflict
Analysts are not discounting the possibility that crude oil prices will climb to as high as $100 if the situation escalates into a full-blown war. The Department of Energy stated it was preparing for the “worst case scenario” and has urged fuel retailers to explore other sources of oil aside from the Middle East. The government should also heed the call of the Philippine Chamber of Commerce and Industry to go down hard on any “speculative” fuel pricing practices by individuals and companies who may want to exploit the crisis that may be unfolding thousands of miles away but nevertheless affects every Filipino.
As Federation of Philippine Industries chair Elizabeth Lee underscored, the Middle East crisis “is not just a distant conflict—it is an inflationary shock that could affect Philippine households and industries if tensions persist.”
This is also the time for the entire government, regardless of political color, to set ambitions and any self-serving agenda aside to better respond to this latest challenge.
One Filipino caregiver in Israel—Mary Ann Velasquez de Vera—already lost her life in the conflict. And with millions more of our compatriots at risk, the Philippines has the moral ground to call on its allies to ensure the safety of its citizens and for the parties to cease hostilities and restore peace.
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