Facing the headwinds of geopolitical conflicts in the Middle East

In many parts of the world, history repeats itself because the conditions that created the circumstances remain the same. Such could be the starting statement to describe the current geopolitical tensions in the Middle East today. These have threatened economies around the world.

History shows that even in ancient times, armies sought to cripple their enemies by targeting the flow of military logistics and essential goods. In many cases, this meant besieging cities and cutting off access to food and supplies to force surrender.

One notable example is ancient Carthage, a powerful trading hub on the northern coast of Africa. During the Third Punic War, Roman forces besieged the city, ultimately capturing and destroying it. After its defeat, Carthage never regained its former status as an independent military and economic power.

Fast forward to the 20th century, the weaponization of energy became globally visible in 1973, when Arab petroleum-exporting countries imposed an oil embargo on nations that supported Israel during the Yom Kippur War. The move demonstrated how control over energy resources could be used as a powerful geopolitical tool.

That event triggered the first oil crisis in the Philippines, which was marked by fuel rationing, blackouts, inflation, job losses, commodity shortages and currency depreciations. The good news was that Filipinos survived because they were able to adapt quickly and move on. 

However, the idea caught on. Other countries later used financial capital, tourism, critical minerals, international trade networks, infrastructure, food, and other commodities as political leverage, if not as outright economic weapons.

Today, the US-Israel attacks on Iran expose the fragility of key global trade routes, particularly the Strait of Hormuz, through which a large share of the world’s oil flows. Any disruption there can push up energy prices, raise transportation costs, and create logistical bottlenecks.

These ripples translate into intensified inflation and slower growth, creating an intercontinental climate of risk that could deter vital investment, including in the Indo-Pacific.

The Philippines is not spared from global market shocks. As a net fuel importer, it remains highly vulnerable to international volatility. Increases in fuel prices are likely to drive up costs in transportation and food, placing additional pressure on both government budgets and household expenses. 

Power generation in the Philippines is dominated by coal, followed by renewable energy such as geothermal and hydroelectric, and natural gas. Oil-based power plants contribute only a small portion to the grid. However, petroleum-based fuels remain the primary sources for the transport sector, including shipping, aviation, and land vehicles. This dependence ensures that any disruption in global oil supply would directly affect the cost of commerce and trade nationwide.

Latest data from the Philippine Statistics Authority show that headline inflation accelerated to 2.4% in February 2026, up from 2.0% in January, bringing the year-to-date average to 2.2%.

This increase was mainly driven by rising costs of food and non-alcoholic beverages. Core inflation, which excludes volatile food and energy items, also edged up slightly to 2.9% from 2.8%.

However, in light of recent geopolitical developments that have rippled across the world, the Bangko Sentral ng Pilipinas projects March inflation to range between 3.1% and 3.9%.
 

Inflationary pressures have been further fueled by higher domestic petroleum prices due to the Middle East conflict, rising costs of rice, increased electricity rates in Meralco-serviced areas, and the depreciation of the Philippine peso.

In March 2026, the Philippine peso weakened to an average of P59.41 amid steady BSP rates, a stronger US dollar, and rising oil prices, all tied to broader economic pressures from Middle East tensions.

Moreover, President Marcos Jr. emphasized government efforts to maintain remittance flows from overseas Filipino workers while supporting repatriation efforts.

A Pulse Asia survey in the first quarter of 2026 shows that Filipinos are primarily concerned with controlling inflation. This concern is expected to intensify due to global events, such as the ongoing Middle East crisis, which could affect domestic economic conditions.

Ongoing energy challenges and global geopolitical tensions are creating a complex operating environment for businesses, with potential cost increases and supply chain disruptions. Higher fuel and electricity prices are likely to raise production and distribution expenses, especially in energy-intensive sectors such as manufacturing and logistics.

Temporary fuel shortages could further affect transportation, raw material deliveries, inventory management and product distribution.

Recognizing the urgency of these mounting pressures, President Ferdinand Marcos Jr. recently issued Executive Order No. 110, declaring a state of national energy emergency.

This measure adopts a whole-of-government approach to stabilize energy supply, ensure the uninterrupted delivery of essential goods and services, and cushion the broader economic impact of ongoing global volatility. Complementing the EO, President Marcos Jr. signed Republic Act No. 12316, granting emergency powers to suspend or reduce fuel excise taxes.

Meanwhile, the depreciation of the Philippine peso against the US dollar can provide some economic relief. It raises the peso value of foreign remittances, supports earnings in the business process outsourcing sector, strengthens exports, and increases the peso equivalent of dollar-denominated investments and assets, serving as a partial buffer against broader cost pressures.

While external challenges pose short-term risks, sustaining economic resilience will depend on maintaining a stable domestic environment and responding promptly and flexibly to external shocks.

The government need not act alone; partnering with the private sector can help mitigate these consequences. Individuals and businesses can contribute by using resources efficiently by minimizing unnecessary travel, planning activities carefully, or leveraging online meetings and classes without significantly affecting the economic well-being of others. 

On a larger scale, the government should start implementing an austerity program in as many areas as possible, such as cutting down foreign trips, massive use of bodyguards who consume so much fuel to move around, and high-cost social visibility activities.

The total economic fallout of the tensions in the Middle East will ultimately depend on the duration and intensity of the conflict. This uncertainty highlights the critical need to fortify the nation's resilience by enhancing energy security, diversifying supply chains, and refining domestic policy.

Furthermore, the Philippines must deepen its cooperation with like-minded international partners. By working closely with trusted allies, the country can more effectively mitigate risks, ensure the steady flow of trade and investment, and safeguard economic stability within an increasingly volatile global environment.

By combining sound macroeconomic management, responsive public service delivery, efficient use of resources and continued governance reforms, the Philippines can strengthen its capacity to absorb external pressures and preserve long-term growth momentum as it has done effectively in the past.

---

Venice Isabelle Rañosa is the research director of the Stratbase Group.