Slippery

Today, the oil price increase will be especially brutal on our consumers. Global uncertainty and the sharp depreciation of the peso explain this event.

The peso is on a slippery slope. The speculation is that the currency could fall to $1:P65 towards the end of this year. There is little we could do to defend our currency.

Optimists, as usual, are telling us the increased inflow of remittances as we near the holiday season will rescue the peso. We have been told that every year as the fourth quarter approaches. Each year, the remittance flow was not strong enough to reverse the trend towards a weaker peso.

It will certainly not be strong enough this year. Many of the economies that host our migrant workers are suffering from the fallout from Trump’s war. Our workers are spending more to support themselves in the countries where they serve. Escalating inflation is a global phenomenon.

We rely on remittances to prop up domestic consumption. Our economy runs on household spending. This has become more pronounced in the light of lesser government spending and weak industrial performance. This year, a large proportion of household spending will be dedicated to repairs after all the flooding we endured.

Meanwhile, we need more dollars to buy oil. Because of what is happening in the Middle East, Brent crude climbed to $108 last week. It will likely stay at that level into the foreseeable future. The uncertainties in this troubled region have not subsided. They have multiplied.

Last week, the Houthis in Yemen swept up the Red Sea coast and took another important city. Their bombing attacks forced Saudi Arabia to shut down a vital pipeline from the wells in the east to the ports on the western side of this country. Suddenly, the Kingdom of Saudi Arabia looks like a vulnerable country defended with tin can soldiers.

The demographics do not favor the status quo. The population of Yemen is larger than the population of Saudi Arabia and the Gulf states combined. Three-fourths of Yemen’s population resides in areas controlled by the Houthis. By sweeping up Yemen’s western coast and taking a strategic island at the mouth of the Red Sea, the Houthis are now better positioned to choke commerce through the narrow Bab Al-Mandeb strait.

Closure of this strait doubles the destructive power of the blockades. First, there was just the Strait of Hormuz. Now the Bab Al-Mandeb strait may be closed as well.

When the Houthis began their lightning offensive, the Saudi-sponsored Yemeni government asked for air strikes. None came. Saudi Arabia had modern military equipment but not enough men to man a credible military.

The US forces in the region could not respond to the Houthi offensive either. Twelve US bases in the vicinity have been completely destroyed by Iranian bombardment. The US forces in the region are running short of munitions. The carrier strike group is too far out in the Indian Ocean, fearing Iranian supersonic missiles.

If this trend continues, Saudi Arabia could face an existential crisis. The kingdom could dissipate ahead of the State of Israel. This is the worse-case scenario.

After Trump and Netanyahu launched the attack on Iran last February, the US and its major industrial partners were able to soften the impact on oil prices by drawing down on the strategic petroleum reserves. As the consequence, the oil price spike was more benign than it should be.

Today, however, the strategic petroleum reserves are down to their minimum operating levels. These reserves could no longer function as shock absorbers for oil prices. Worse, should the conflict expand over the next few months, supply issues could drive prices through the roof. This, in turn, portends a global recession.

Add to the loss of oil supply from the Gulf region the loss of many Russian refineries to Ukrainian drone attacks over the past month. This means even less oil getting to market. The supply/demand price dynamic kicks in.

Diesel prices in the US are at the highest they have ever been. Diesel prices here will soon replicate that. Prepare for a transport crisis over the next few weeks.

Trump did not only fail to beat Iran into submission. He has opened the door to general instability in the Middle East. Saudi Arabia looks most fragile. Bahrain could face upheaval. The economy of the other Gulf states are on their backs.

The US military worldwide is at its weakest in recent history. If Beijing makes a move to annex Taiwan, the US will not have the forces to intervene. Washington will rely on Manila to provide the troops to rescue Taiwan.

Meanwhile, bond yields in US Treasuries are spiking. This will force American interest rates to climb across the board, hitting mortgages and drying up reinvestments. Still, Trump fails to understand that his much vaunted tariffs are harming American consumers more than the other countries. Life for ordinary Americans will become increasingly unaffordable.

Things will become even more severe for Filipinos as well. We have borrowed beyond the point of prudence. As things stand, we no longer have the fiscal space to rebuild our economic momentum.

Higher interest rates loom. Our ability to grow our economy will be seriously constrained. We can go downhill very quickly on an already slippery slope.

We need to be rescued from incompetent leadership.