War on Iran could push PH inflation to near 4%

An escalation of the conflict in the Middle East could push Philippine inflation toward 4 percent in the coming months, an analyst said.

Bank of the Philippine Islands (BPI) lead economist Emilio Neri Jr. said developments in the Middle East had reintroduced volatility into global energy markets, with direct implications for inflation, interest rates, remittances and the peso.

“A renewed leg higher in global oil prices would amplify second-round effects through transport, electricity, and logistics costs, potentially broadening inflationary pressures beyond food and fuel,” Neri said in a commentary.

Over the weekend, the United States and Israel launched coordinated airstrikes on Iranian targets, prompting Iran to retaliate with strikes across the Middle East.

As the region remains a critical oil supplier, any sustained disruption could affect global supply and inflation expectations, with the immediate transmission channel being energy prices.

Neri noted that Iran produces about 3.3 million barrels per day, making it the fourth-largest producer within OPEC. More crucially, around 20 percent of global oil supply and roughly 30 percent of globally traded crude pass through the Strait of Hormuz, equivalent to about 20 to 30 million barrels per day.

Under a moderate escalation, oil prices could rise to $75 to $80 per barrel, Neri said. A prolonged blockade of the Strait of Hormuz, meanwhile, could see prices surge to $100 to $120 per barrel, and this outcome was said to have around a 33-percent probability.

For the Philippines, higher oil prices could compound existing rice-driven inflation pressures. BPI expects February inflation to have risen from 2.0 percent in January.

The bank’s full-year inflation forecast currently stands at 3.7 percent but Neri said it may be revised after official February data is released this Thursday

“If WTI (West Texas Intermediate) oil holds near $80/bbl through June or monthly rice inflation continues to accelerate, the policy space for further easing could narrow materially, potentially limiting the BSP’s (Bangko Sentral ng Pilipinas) ability to implement further rate reductions this year,” Neri said.

He also warned that the conflict posed downside risks to remittance flows, as nearly 40 percent of overseas Filipino workers are based in the Middle East.

However, cash remittances from the region accounted for just 18 percent, or $6.5 billion, of total inflows of $35.6 billion in 2025, Neri said, “suggesting that while risks are elevated, the overall impact may be contained than imagined unless the conflict significantly escalates.”

Government officials on Tuesday said they were monitoring developments in the Middle East and acknowledged that an escalation or a prolonged conflict would have an economic impact.

With fuel prices a particular concern, President Ferdinand Marcos Jr. said he was considering asking Congress to grant him emergency powers to lower fuel excise taxes if Dubai crude tops $80 per barrel.

He also said fuel subsidies could be provided to the transport and agriculture sectors.

Marcos said that the safety of Filipinos in the region was a priority and urged an end to the conflict.

The Department of Agriculture (DA), for its part, said it was working to manage the impact of the war on Iran on food prices and the farm sector.

The Strait of Hormuz, it noted, was a critical oil trade route and a disruption of supply could affect commodities such as fertilizers and also raise logistics costs.

Costs of imported products like wheat and animal feed could also rise, which may then translate to higher retail prices of bread, pork, poultry and livestock. The DA said this would complicate the government’s efforts in managing food inflation.

The Department of Energy, meanwhile, echoed Marcos’ proposal to reduce fuel excise targets and reiterated the possibility of staggering the substantial fuel price hikes that are expected to result from the conflict.

It also reiterated the president’s claims that fuel supplies remained adequate and were above the mandated minimum, but added that was preparing for a worst-case outcome.

“In this development in the Middle East and with regards to fuel supply, we are hoping for the best, but we are preparing for the worst,” Energy Secretary Sharon Garin said.

Source: Manila Times