THE surge in global oil prices from $71 to $113 per barrel last week is largely attributed to the escalating war in the Middle East. Last week, Israel bombed Iran’s largest offshore gas field in South Pars, and Tehran responded by launching missile attacks on Qatar’s Ras Laffan oil hub, which sent energy markets reeling. The United States plans to release its strategic oil reserves while allowing Iran’s 140 million barrels of oil already in transit to be made available to global buyers.
In reality, it is not as if the world is in short supply of oil. Global reserves are sufficient, and production capacity can last over the next 100 years. The current shortage is due to disruptions in the flow of oil, since Iran attacked oil tankers that passed through the Strait of Hormuz, as well as the destruction of main oil infrastructure. Except for China and India, oil supply to other nations abruptly stopped, affecting the costs of living and imports of critical commodities. Airfares are also rising due to the expected increase in jet fuel prices. Meanwhile, Iran’s resilience in retaliating against the US and its allies in the region only proved its asymmetric capabilities to prolong the war and keep its adversaries unbalanced.
However, President Ferdinand Marcos Jr. had to make a difficult but necessary decision to ease inflationary pressures of the oil price surge. He overturned the decision of the Land Transportation Franchising Regulatory Board to raise public transport fares of jeepneys, transportation network vehicles and tricycles. The Philippines imports over 70 percent of its fuel requirements from highly volatile nations in the Middle East, making us vulnerable to global price shocks. The majority of our coal imports for power plants come from Indonesia, while natural gas is sourced from Qatar. Iran seeks to intensify its attacks with drones and missiles and drive oil prices up as stock markets plummet. President Marcos remains optimistic that the war in the Middle East shall eventually subside and the Strait of Hormuz will be reopened soon. This is, indeed, a risky calculation.
Marcos has asked Congress for emergency powers to slash the excise taxes on fuel to cushion the public from the rising costs. Cash subsidies to public transport drivers are also being distributed across the country. However, sustaining these measures with shrinking public funds and revenues posed serious challenges. Currently, the country’s debt-to-gross domestic product ratio stands at 63 percent, limiting the country’s fiscal flexibility. Worse, the country’s economy is highly dependent on the services sector, which is vulnerable to slowdowns in consumer spending, as seen during the Covid-19 pandemic. Overseas Filipino workers in the Middle East are struggling to cope with sending more remittances to their families. Tourism and retail trade have decelerated, while the weakening of the peso against the dollar increased the importation costs of basic commodities and major inputs for our industries.
But was the president correct in suspending the public transport fare hike?
If transport fares were allowed to increase, inflation would spiral and accelerate to uncontrollable levels — with even basic goods, such as rice, sardines, eggs, livestock and cooking oil, becoming more expensive — and could result in widespread civil unrest. Inflation is a death knell to any economy, especially during periods of weak spending. In this context, Marcos’ decision may not be popular, but it is justified to temporarily halt the spike in the prices of all basic commodities. His goal is to wait until the Middle East war tapers off and oil prices stabilize and return to below $100/barrel by April. Ultimately, the economic hardships experienced by the world and the pressure of its allies would force the US to pull back and find an exit strategy. Marcos might be right, since the US midterm elections will be held in November. Trump’s fellow Republicans would want to end the war by April and avoid electoral annihilation. In addition, Iranian moderates will eventually assume power and sue for peace, since they need to ensure the survival of their people and country in the long run.
With this in mind, Marcos is making a high-stakes gamble to ensure the survival of the country. He hopes that the war won’t drag on and the economic pressures it brings would subside by April. Otherwise, political destabilization can intensify and seriously challenge his presidency. If he pulls this off, he will be remembered as the president who steadily steered the country during one of its most severe economic crises in modern history. The question is would the nation be more patient with and considerate of Marcos amid dwindling incomes and anger over the massive corruption under his watch.
Marcos has an opportunity to demonstrate his leadership this time around.
