Philippine policymakers brace for economic oil shock

MANILA (Philippine Daily Inquirer/Asia News Network): The incoming presidential administration is bracing for the impact of an oil price shock caused by a surge in demand as economies around the world reopen over two years after the start of the pandemic, aggravated by Russia’s invasion of Ukraine.

“High oil prices are a headache to any administration because of the critical importance of oil — a significant source of power or energy for our industries and daily lives,” said Arsenio Balisacan, chair of the Philippine Competition Commission, who will be the country’s chief economist under President-elect Ferdinand Marcos Jr.

Balisacan, who will return as chief of the National Economic and Development Authority in July, told the Inquirer that he will crunch the numbers on expensive oil’s effects on the domestic economy. The Philippines is a net importer of oil.

Among the reasons why President Rodrigo Duterte’s economic managers tempered their growth expectations for this year to a narrower 7 to 8 per cent range from 7 to 9 per cent previously were external risks emanating from the Ukraine crisis, including oil price pressures.

The Development Budget Coordination Committee last month said it jacked up its assumption for the price of Dubai crude oil to $90-110 a barrel for 2022 “considering potential supply disruptions caused by the Russia-Ukraine conflict.”

Private-sector economists echoed Balisacan’s view, and BDO Unibank chief market strategist Jonathan Ravelas summed it all up: “expensive oil means higher cost of power and transport, and, in turn, higher cost of input and logistics costs” — the wheels of the consumption-driven Philippine economy.

“High oil prices are inflationary, with the bulk of industries dependent on crude to power production. As such, production costs get higher and are passed on to consumers. This consequently leads to both higher inflation print and expectations, and if not checked or reined-in may lead to a price growth spiral, eroding the consumer’s budget, and slowing growth,” Security Bank chief economist Robert Dan Roces said.

Nicholas Antonio Mapa, senior Philippine economist at Dutch financial giant ING said the Philippines’ energy mix is dominated by coal, which accounts for 47 per cent, and then oil, at 6 per cent.

“Thus, elevated global energy prices are likely to impact more than 50 percent of our power supply.”

“On top of that, imported oil-based products power most of our public transportation (not to mention private users as well) and manufacturing, suggesting that transportation and production costs are all likely headed north,” he said.

The situation is aggravated by the fact that the price of diesel — which largely fuels the Philippine industrial, transportation, and agriculture sectors — has risen faster than other petroleum products.

Where there once was a wide price difference with diesel being much cheaper than unleaded gas, that gap has narrowed substantially in recent weeks to as little as It is now only P1.15 in some filling stations.

The implications on the diesel-dependent Philippine economy are significant.

Article type: free
User access status:
Subscribe now to our Premium Plan for an ad-free and unlimited reading experience!

Philippines , oil , shock


Next In Aseanplus News

India backtracks on support for Rohingya refugees, will deport them
GaiGai to give away vouchers after apologising for marketing stunt that mimicked govt letters
Fourth Army orders security boost after deep South hit by 17 attacks in few hours
Indian smuggler arrested at Thai airport with fox, racoon and pythons
Myanmar buys Russian oil as emerging markets take shunned supply
Laos to focus on development of renewable energy
The 10 most mesmerising mosques in Malaysia
Malaysia aims to learn from Thailand in push for medical use of cannabis
Vietnam Post releases stamp collection of famous waterfalls
French boy, 5, dies from jellyfish sting in Pangkor Island

Others Also Read