The Philippines now faces a growing web of economic risks stemming from escalating tensions in the Middle East. A prolonged conflict threatens to disrupt vital oil supplies, impacting both the nation’s economy and the livelihoods of its citizens.
The Strait of Hormuz, a critical artery for global oil transport, has already experienced closures, sparking fears of surging fuel prices worldwide. Nearly a fifth of the world’s oil, and over 90% of the Philippines’ crude oil, passes through this strategic waterway.
Fitch Ratings warns that a sustained closure – lasting over a month – could significantly damage the credit rating of emerging markets like the Philippines. The country’s substantial reliance on fossil fuel imports, representing 4.2% of its GDP, makes it particularly vulnerable to price volatility.
Beyond oil, the conflict casts a shadow over remittances sent home by overseas Filipino workers (OFWs). Approximately 2.5 million Filipinos work in the Middle East, contributing a significant 18% – roughly $6.481 billion – of the total $35.634 billion in remittances received in 2025.
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. acknowledged the potential for reduced demand for Filipino labor in the region, a concerning prospect given the crucial role remittances play in the Philippine economy.
Adding to the complexity, geopolitical tensions could also impact the Philippines’ current account and potentially reverse the BSP’s recent easing of monetary policy. Nomura Global Markets Research predicts a widening current account deficit and rising inflation.
The BSP has already lowered benchmark interest rates six times in recent months, bringing them to a three-year low. However, analysts now suggest a pause – or even a reversal – of this trend if oil prices continue to climb.
Governor Remolona indicated that a rate hike could be considered if oil reaches $100 per barrel, potentially pushing inflation beyond the central bank’s target range of 2-4%. The current inflation rate, averaging 2.2% in the first two months of the year, is already being influenced by rising energy costs.
Nomura now forecasts an average inflation rate of 3.2% for the year, a significant increase from their previous estimate of 2.5%. This shift in outlook has led them to remove their prediction of a further rate cut in April, anticipating a hold at the current 4.25%.
The central bank aims to maintain inflation near its “sweet spot” of 3%, but the unfolding situation in the Middle East presents a formidable challenge to achieving this goal and safeguarding the Philippine economy.
