June 15th, 2025
Rep. Joey Sarte Salceda
The recent tensions between Israel and Iran follow a long pattern of strategic hostility between the two countries. While the military actions in April 2025 were more direct than usual, both parties have historically avoided prolonged escalation. For the Philippines, the issue is not foreign alignment but economic preparedness. The conflict affects us through oil prices, exchange rate movements, labor market disruptions, and import costs. These risks must be considered as agencies finalize their Tier 1 and Tier 2 proposals under the 2026 budget call.
The Strait of Hormuz carries more than 20 percent of global oil supply. The Philippines consumes approximately 471,400 barrels of oil per day. A USD 10 increase in Brent crude prices would raise our oil import cost by USD 4.7 million daily. At PHP 55 per dollar, that is PHP 258.5 million per day or PHP 94.9 billion per year. These figures must be reflected in the budgetary assumptions of agencies responsible for fuel subsidies, transportation, agriculture, and power.
From 16 April to 25 April 2025, the peso appreciated slightly from PHP 56.60 to PHP 56.28 per US dollar. As of 31 May 2025, the Bangko Sentral ng Pilipinas reported gross international reserves of USD 105.5 billion, equivalent to 7.3 months of import cover. This is a strong position, but external volatility can change conditions rapidly. The macroeconomic assumptions guiding the 2026 National Expenditure Program should reflect this environment.
About 2.16 million Filipinos are working abroad, with more than one third in the Middle East. Saudi Arabia accounts for over 20 percent, and the United Arab Emirates for more than 13 percent of that population. In January 2020, the Department of Labor and Employment mobilized PHP 600 million for repatriation and welfare services due to rising tensions in the region. That figure remains a practical benchmark for 2026 proposals by the Department of Migrant Workers and the Department of Foreign Affairs.
Approximately 66 percent of fertilizer imports to the Philippines are nitrogen based, primarily urea. Qatar is one of the major suppliers. Any disruption in Gulf shipping would increase domestic fertilizer prices. The Department of Agriculture, the Bureau of Plant Industry, and the National Food Authority should include contingency logistics and buffer stock provisions in their 2026 budget proposals.
Marine insurance premiums may also rise. If global insurers designate Gulf routes as war risk zones, freight rates on oil and food cargo may increase. Even Philippine shipments not passing directly through the Gulf may face higher landed costs due to global reinsurance adjustments. The Maritime Industry Authority and the Department of Trade and Industry should account for this in their operational planning and propose budget lines for monitoring and response.
The Bangko Sentral ng Pilipinas identifies oil prices as a significant driver of domestic inflation. Although there is no fixed conversion rate, historical data show that sustained increases in oil prices can contribute between 0.5 and 1.5 percentage points to headline inflation, depending on magnitude and duration. This should guide the Development Budget Coordination Committee in refining inflation assumptions and adjusting the costs of social protection programs for 2026.
In light of these developments, the following actions are recommended for 2026 budget preparation:
1. Agencies implementing fuel subsidies such as Pantawid Pasada should include flexible funding proposals, with PHP 5 billion as a baseline based on the 2022 experience.
2. The Department of Energy and relevant agencies should assist private oil importers in securing forward contracts to manage price risks.
3. The Department of Agriculture and attached agencies should update their fertilizer sourcing strategies and propose funding for logistics resilience.
4. The Department of Migrant Workers and the Department of Foreign Affairs should validate overseas contingency plans and propose standby funds at a level of at least PHP 600 million.
5. The Maritime Industry Authority and the Department of Trade and Industry should monitor shipping insurance trends and assess if premium surcharges require government support for critical imports.
6. The Development Budget Coordination Committee should ensure that oil price scenarios are fully integrated into the inflation outlook and that agencies reflect these risks in their program costing.
The Philippines does not control external conflicts, but it can control its fiscal posture. The 2026 budget should be designed to absorb external shocks, preserve domestic stability, and maintain purchasing power for Filipino households.