Now the pain begins

(Conclusion)

With the US-Iran conflict still unresolved after three months and about to enter its fourth month this week, the energy crisis it caused is beginning to adversely impact highly import-dependent countries such as the Philippines, pushing up crude oil prices, fanning inflation, slowing economic growth and causing the Philippine peso to weaken.

According to a research paper released by the Nigerian Journal of Sustainability Research titled “The Philippine Peso in Freefall: How the Iran War Is Crushing the Philippines’ Currency and Economy,” a weaker peso compounds the crisis in a particularly vicious cycle. Because oil is priced in US dollars, every peso that falls against the dollar makes imports more expensive. This pushes inflation higher, which weakens consumer spending, which slows growth, which puts further downward pressure on the currency. This is exactly the cycle the Philippines is now trapped in.”

The NJSR research paper cited that “the inflation figures emerging from the Philippines have alarmed economists across the region. Headline inflation rose to 4.1 percent year-on-year in March 2026, the highest since July 2024. Then in April, it surged again — this time to 7.2 percent year-on-year, a three-year high not seen since March 2023, and representing the fifth consecutive monthly increase. The jump from 4.1 percent in March to 7.2 percent in April in a single month is the kind of acceleration that signals a loss of control over price stability rather than a managed climb.”

The report continued that the “Bangko Sentral ng Pilipinas — the Philippine central bank — has now revised its inflation forecast to average 6.3 percent for the full year 2026. For ordinary Filipinos, this is not an abstraction. It means higher prices at the pump, at the market, at the transport terminal and on the electricity bill, all arriving at once, all sustained by a war they have no role in and no ability to stop.”

The NJSR paper added that “The Taipei Times noted that the Philippines may be ‘Asia’s first Iran war inflationary domino to fall’ — a canary in the coal mine for the broader region, whose travails are a distress signal to developing Asia that should not be ignored.”

The BSP, the NJSR paper acknowledged, “has responded with its most aggressive policy shift in over two years. In mid-April, it raised its policy rate by 25 basis points to 4.5 percent, marking the first rate hike since the previous tightening cycle ended. BSP Gov. Eli Remolona Jr. signaled that further tightening remains possible if needed, and analysts at Sumitomo Mitsui Banking Corp. estimate the central bank could raise rates by a total of up to 100 basis points across 2026.”

Under normal circumstances, the NJSR paper said, “rate hikes support a currency by widening interest rate differentials and drawing in foreign capital seeking higher yields. But this is not a normal circumstance. The surge in oil import costs is forcing the Philippines to spend ever more US dollars on energy, which directly increases demand for the greenback and puts offsetting pressure on the peso regardless of what the central bank does domestically.”

The NJSR article continued that “The market has been unmistakable in its verdict. The peso lagged all Asian peers on April 24, the same day the BSP governor signaled coming rate hikes. Investors simply do not believe that interest rate adjustments can neutralize a structural, supply-side energy shock of this magnitude.”

Furthermore, NJSR wrote, “analysts at Australia & New Zealand Banking Group forecast the peso could weaken further to P63 by year-end. MUFG Bank’s senior currency analyst Michael Wan has warned the peso could slide to P62 to P63 if the Strait of Hormuz remains closed. The market is pricing in more pain ahead.”

It was also highlighted that “The macroeconomic damage extends well beyond the currency. Philippine GDP growth slowed to just 2.8 percent in the first quarter of 2026, a new post-pandemic low, hit by both the fallout from the domestic infrastructure corruption scandal that had already rattled investor confidence and the surging energy costs introduced by the Iran war. The Asian Development Bank has lowered its 2026 growth forecast for the Philippines to 4.4 percent, down from an earlier projection of 5.3 percent. The World Bank and IMF have gone further, trimming their forecasts to 3.7 and 4.1 percent, respectively — all well below the Philippine government’s five to six percent target.”

The NJSR observed that “On May 7, the peso staged its best single-day performance in a month, surging 1.6 percent to P60.345 to $1.00 — the largest single-day advance in Asia that day — on optimism surrounding early signals of a possible US-Iran peace process. That one rally illustrated both how badly the market wants the war to end and how entirely dependent the peso’s trajectory has become on developments in Tehran and Washington rather than Manila. The temporary relief was quickly erased as the peace process remained inconclusive and oil prices stayed elevated.”

It stressed that “For the 117 million people who live with the peso every day, the numbers translate into something painfully concrete. Higher fuel prices ripple immediately into transport fares, electricity bills and the cost of food, since agricultural production and logistics both depend on diesel. Inflation at 7.2 percent means a family’s purchasing power is deteriorating in real time, month after month, with no clear end date in sight.”

It added that “For the more than 2.5 million overseas Filipino workers employed in the Gulf region — earning around $15 billion per year and sending a significant portion home as remittances — the situation is doubly complicated. A weaker peso technically means their dollar remittances buy more pesos when they arrive home. But the safety and continued employment of those workers is itself at risk from the ongoing regional conflict.”