BUSINESS groups on Monday expressed concerns over renewed conflict in the Middle East, noting the likely impact on the economy, particularly in terms of energy prices and remittances.
With the Philippines highly dependent on imported oil and fuel, MUFG also said the country was among the most vulnerable in Asia if oil prices, which have surged in the wake of US and Israeli attacks on Iran, remain elevated.
The Energy department said it was considering staggered fuel price hikes starting next week if the “conflict does not de-escalate.”
Foreign Buyers Association of the Philippines President Robert Young warned of supply chain disruptions that could affect Philippine exports, while Philippine Chamber of Commerce and Industry (PCCI) President Perry Ferrer told The Manila Times that the conflict would “certainly impact the Philippines directly.”
Higher fuel prices will make commodities and imports costlier ”unless [an] agreement is reached within the week,” he added.
The PCCI, in a statement, called on the government to consider sourcing oil from other sources.
“Our country sources 100 percent of its crude oil imports from the Middle East. With oil prices surging amid fears of disruption in the Strait of Hormuz, we call on the government to urgently explore and secure alternative sources of fuel supply to reduce our dependence on a single region,” the PCCI said.
Tankers have stopped entering the Strait of Hormuz, a critical oil trade route, after Iran warned against the use of the waterway.
The PCCI also called on the government to stabilize fuel prices, ensure an adequate supply of basic goods and deploy monetary tools to protect the peso.
It also urged officials to safeguard Filipinos working in the Middle East, whose remittances fuel domestic consumption.
“Their safety and welfare is our most immediate and non-negotiable concern,” the PCCI said, adding that repatriated workers should also be provided livelihood and reintegration support.
Federation of Philippines Chairman Elizabeth Lee also warned of higher fuel and electricity prices and logistics costs.
“For manufacturers dependent on imported inputs, this may translate into higher freight costs, longer transit times, and more expensive raw materials,” she added.
MUFG, meanwhile, said the peso could come under pressure from higher oil prices.
It estimated that every $10 per barrel increase in oil prices could weaken current account positions across Asia by about 0.2 to 0.9 percent of GDP, with the Philippines among the most affected purely from a balance-of-payments perspective.
Consumer price inflation could rise by roughly 0.1 to 0.9 percentage point across Asian economies following a $10 per barrel increase in oil prices, with the Philippines, Thailand, Vietnam and South Korea facing the strongest upward pressure.
Oil prices closer to $90 per barrel could push inflation in the Philippines toward the upper end of the central bank’s target range, adding to the challenge of managing price stability.
Amid these risks, MUFG said central banks in Asia, including Bangko Sentral ng Pilipinas, are likely to maintain its current policy rate.
“We don’t think Asian central banks will hike rates just because of this risk, but it could delay rate cuts for the likes of the Philippines and Indonesia,” MUFG said.
“Further reduce the probabilities of cuts for markets such as India and South Korea.”
