The good news is that Iran now allows Philippine flagged vessels to traverse the Strait of Hormuz.
The bad news is that we have no vessels currently in the Persian Gulf. Nor do we have any of those supertankers that can transport the oil we need from the troubled Middle East.
Industry analysts tell us that even if the war ends today, it will take at least 11 months for global petroleum supply to normalize. It will take much longer for LNG supplies to normalize. The damage to Qatar’s LNG facilities may take at least three years to fix.
In the interim, we will have to learn to cope with an elevated oil price regime. If attacks on oil processing facilities escalate, as Trump threatens, oil prices could spike to $200 per barrel – or more. Should Israel, in its desperation, decide to use nuclear weapons, the global economy is screwed.
The Philippines is one of the worst hit economies as a consequence of Trump’s war. Pump prices have basically doubled – and there is little sign of relief. We are among the most vulnerable to a supply crisis. When our meager stockpile runs out, we will be in deep trouble.
In the face of yet another energy crisis, we celebrate the discovery of new gas deposits at the Camago-3 well off Palawan. While this is not a very large deposit, it gives us some relief in a period of impending shortages.
The meticulous exploration and testing procedures at the Camago-3 site was undertaken by Prime Energy, a subsidiary of the group of companies led by Enrique Razon.
Prime Energy persisted in its exploration activities even after investor interest in building new gas wells in the country declined. Cheaper imported LNG caused the decline in investor interest.
Today, after all the dislocation brought by war, imported LNG is no longer cheap. There is no indication of where the price ceiling for imported LNG is. The world has become dependent on what we wrongly assumed will be a relatively cheaper resource.
Indigenous LNG, because of long-term supply contracts, remains comparatively cheaper. Had we persisted in doing exploration after the oil giants lost interest, we might have a larger LNG source today.
Credit must be given Razon for daring to invest in gas exploration even as market conditions discouraged it. He saw that national interest demanded that we develop indigenous gas supply. This is comparable to Ramon Ang’s insistence that Petron continue developing its refinery even if rival petroleum businesses saw profit in simply importing finished products.
Neither Prime Energy nor Petron can supply all our energy needs in the midst of the current crisis. But they allow us some amount of flexibility in meeting our energy needs.
Petron’s refinery enables us to negotiate crude oil deliveries from friendly nations. The additional reserves yielded by the Camago-3 well helps us somehow cope in the midst of a global LNG shortage.
Fiscal manager
The current crisis we find ourselves in will inevitably express itself in the fiscal sphere.
An energy emergency has been declared. Comprehensive programs to cushion vulnerable sectors from the impact of the oil price shock are being finalized. The inflationary fallout from the spike in energy prices will have to be contained. All these require adept fiscal management.
Within months, government debt is expected to hit P20 trillion. Before that, we need to find ways to finance government’s crisis operations. We are not even sure we could afford counter-cyclical programs like those we executed during the 2008 global financial crisis.
By a small stroke of fortune, the administration has Ralph Recto as executive secretary at this time. He understands the fiscal problems that need to be surmounted and the sort of inter-agency coordination required to realize a meaningful government response.
This was not entirely by design. Recto served as finance secretary before he was moved to the executive secretary’s post after his predecessor resigned. This was before we had any inkling of the crisis we now endure.
As finance secretary, Recto was in charge of managing government’s fiscal affairs. He pushed to raise revenues and oversee the public debt. This gives him unparalleled insight into the fiscal dynamics government needs to master through the course of this emergency.
The challenges are severe. We expect remittances from the Middle East to be seriously curtailed because of the war. The peso will come under severe pressure the coming weeks. It has already crossed the $1:P60 threshold last week. While we thought interest rates could be brought further down, the present emergency favors raising interest rates instead. This will impact our prospects for economic expansion.
Because of adverse global headwinds, our domestic economy will likely perform below expectation. This will, in turn, reflect in lower revenues for government – bad news at a time when government might have to spend more for subsidies. If excise taxes on fuel are suspended, this will magnify government’s revenue problems.
We could expect substantial repatriation of our workers from the Middle East. Not only will this mean less remittance flows but also more unemployment pressure. Any government response to this crisis must include substantial job-creation efforts.
Although he spent years as a politician, Recto is not known for having a large appetite for grandstanding. He works quietly – often below the radar.
But we need his fiscal competence at this time.