The Philippines is bracing for possible job losses among overseas Filipino workers (OFWs) in the Middle East and an increase in inflation should global oil prices rocket amid increasing tension following the killing by the United States of a top Iranian militia general, Socioeconomic Planning Secretary Ernesto M. Pernia said on Friday (Jan. 3).
Pernia told the Inquirer that one of the possible immediate effects of the increasing tension between the US and Iran was the rise in domestic oil prices.
After the Pentagon confirmed that a targeted airstrike in Baghdad international airport on Jan. 3 killed top Iranian commander Qasem Soleimani, global oil prices climbed by over 4 percent—Brent rose 4.4 percent to $69.16, while WTI increased 4.3 percent to $63.84, Agence France Presse (AFP) reported.
According to the wire agency AFP, global oil prices jumped as “investors grow increasingly worried about the effects of a possible flare-up in the tinderbox Middle East on supplies of the commodity.”
“The latest escalation of tensions between the US and Iran led to higher global crude oil prices to the highest in about four months and also among seven-month highs,” economist Michael L. Ricafort, of RCBC, told Inquirer.
The drift closer to war between the US and Iran, Ricafort said, “could potentially disrupt oil production and supply especially from Iraq and Iran.”
He said this could happen “especially if oil facilities or infrastructure is involved” like what happened following the drone attack on Saudi Arabia’s oil refineries in September 2019.
“Local oil or petroleum prices could increase due to the resulting higher global oil prices,” said Ricafort.
“There will be an impact if this thing escalates. Oil prices may go up and nudge inflationary tendencies locally,” said economist Robert Dan J. Roces, of Security Bank.
Headline inflation, or figures based on Consumer Price Index, averaged a 10-year high of 5.2 percent in 2018 partly due to elevated oil prices that year.
Pernia, who heads the state planning agency National Economic and Development Authority (Neda), said the Philippines may have to find a way out of dependence on Middle East oil and “look for other sources.”
He said it would be “hard to imagine the consequences if conflagration is truly global in scale.”
Pernia said the Philippines has yet to tap Russia as a source of oil because of the absence of a firm agreement to import and export petroleum.
At the start of 2020, excise taxes slapped on oil products further increased by between P1 and P1.50 per liter or kilogram under the Tax Reform for Acceleration and Inclusion (Train) Act.
The Train law provides a suspension of tax increases if global crude oil prices reached or exceeded $80 per barrel.
If the US-Iran tension blow up into war, Pernia said he worried about its impact on OFWs in the Middle East in the long run.
Security Bank’s Roces said a “huge deployment of workers in the Middle East” would have a significant impact if remittances from them stopped.
RCBC’s Ricafort said deployment of OFWs are threatened by escalation of tension between Iran and the US “directly or through proxy attacks.”
Based on the latest Philippine Statistics Authority (PSA) data, 54.9 percent or about 1.26 million of the total 2.29 million OFWs in 2018 are in the Middle East or West Asia, which included Bahrain, Israel, Jordan, Kuwait, Lebanon, Saudi Arabia, Qatar, and the United Arab Emirates (UAE).
Between January and October 2019, cash remittances from Filipinos living and working abroad declined 7.8 percent to $5 billion from $5.4 billion a year ago, the latest Bangko Sentral ng Pilipinas (BSP) data showed.
Even as remittance flows from the Middle East as of end-October last year were lower than in the same 10-month period in 2018, the BSP had said that Kuwait, Saudi Arabia and the UAE remained among the top sources of remittances.
Remittances have been the country’s biggest source of foreign exchange income, insulating the domestic economy from external shocks by ensuring a steady supply of dollars in the system.
These cash transfers were also a major driver for consumption, hence contributing to robust economic growth.