US-Iran tensions to cause oil price hikes, impact OFWs job and remittances

The Philippine government is bracing for possible job losses among overseas Filipino workers (OFWs) in the Middle East as well as a potential uptick in inflation once global oil prices shoot up if tensions between the United States and Iran further intensify, Socioeconomic Planning Secretary Ernesto M. Pernia said Friday.

Domestic oil prices would likely be impacted by the ongoing US-Iran conflict.

After the US government confirmed that a targeted airstrike in Baghdad, Iraq’s international airport on Jan. 3 killed top Iranian commander Qasem Soleimani, global oil prices climbed by more than 4 percent—Brent rose 4.4 percent to $69.16 while WTI increased by 4.3 percent to $63.84, according to foreign wire agencies.

They said global oil prices jumped as “investors grow increasingly worried about the effects of a possible flare-up in the tinderbox Middle East on supplies of the commodity.”

“The latest escalation of tensions between the US and Iran led to higher global crude oil prices to the highest in about four months and also among seven-month highs, amid this geopolitical uncertainty in the Middle East that could potentially disrupt oil production and supply especially from Iraq and Iran, especially if oil facilities/infrastructure is involved, similar to what happened (drone attacks) on Saudi Arabia’s major oil facilities in mid-September 2019, though this risk remains to be seen for now. Thus, local oil/petroleum prices could increase due to the resulting higher global oil prices.”

“There will be an impact if this thing escalates. Oil prices may go up and nudge inflationary tendencies locally,” Security Bank chief economist Robert Dan J. Roces.

If the US-Iran tensions escalate further and persist, Pernia said he was worried about its potential impact on OFWs in the region for the longer run.

“Having a huge deployment of workers in the Middle East, demobilized workers will have an impact on remittances,” Roces said.

Also, “deployment of OFWs could be adversely affected in countries that could be directly and indirectly involved in any further escalation of tensions between the US and Iran in the Middle East, directly or through proxy attacks/clashes between their respective allies in the region,” Ricafort said.

Based on the latest Philippine Statistics Authority (PSA) data, 54.9 percent or about 1.26 million of the 2.29 million OFWs in 2018 were working in the Middle East or West Asia, which included Oman, Bahrain, Israel, Jordan, Kuwait, Lebanon, Saudi Arabia, Qatar and the United Arab Emirates (UAE).

Even as remittance flows from the Middle East as of end-October last year were lower than during the same 10-month period in 2018, the BSP had said that Kuwait, Saudi Arabia and the UAE remained among the top sources of remittances.

Remittances have been the country’s biggest source of foreign exchange income, insulating the domestic economy from external shocks by ensuring a steady supply of dollars into the system.

These cash transfers are also a major driver for consumption, hence contributing to robust economic growth.

Take note also that there are several U.S. Military Facilities in the Middle East Region.

This map does not include every U.S. base or facility in the Middle East, but rather focuses on those which are well documented or currently known to be in use. Several of these bases are not considered U.S. property, but are host-government operated, and host the presence of U.S. forces or material. Others, such as those in Oman, permit the presence of U.S. forces for pre-approved missions. While U.S. troops currently operate in Iraq and Syria, these areas of operation have changed rapidly over the past several years, requiring the construction of temporary or forward operating bases, few of which are publicly acknowledged by the U.S. military.  These are not included in this map.