As we once again find ourselves asking “what’s next?” I see at least two general schools of thought.
One perspective thinks the ongoing conflict in the Middle East – the United States and Israel ganging up on Iran; Iran attacking other Gulf states in return – would not last long. Much of it boils down to the political motives of Donald Trump. Is he in this to be able to present a victory and bolster his party’s chances in the country’s upcoming midterm elections this November? Is he just keen to disrupt a news cycle that’s squaring in on the affordability crisis engulfing the United States, or at the very least, the Epstein files? The lack of a clear motive or long-term plan after the attacks – which has already killed thousands of civilians as of this writing – points towards this motivation. Sooner or later, they say, the fighting will end, the tensions will settle, and so will the state of the global economy. It did happen before, the last time there was a major conflict in the region, when Israel and Iran traded missiles for twelve days.
The other isn’t as optimistic. No matter how long the fighting goes, the damage to the global economy is already being done, particularly increased costs due to questions over oil supply and blocked trade routes. One might look at Russia’s attempted invasion of Ukraine, now a deadlocked war of attrition: while things have arguably settled down, energy costs in western Europe are still high.
The latter perspective is one that I subscribe to. I don’t think I’m just being cynical and alarmist. The Philippines, after all, is particularly vulnerable. As an archipelago, all of our imports have to come from sea or air, and both forms of transport have been severely disrupted in the first few days of the war. (Both sides seem to be keen to widening the theater of war: the US attacked an Iranian warship in international waters off Sri Lanka, while Iran launched attacks at facilities in Azerbaijan.) The disruption to sea trade remains, especially with the Strait of Hormuz – a major artery of oil shipments – very much in the theater of war. And of course, there’s our vulnerability to oil price shocks like this one. We import all of our oil. We import almost all of our crude from the Middle East. Sure, this might impact only one oil retailer, and you might say I should be looking at our petroleum imports. They mostly come from our neighbors – South Korea, China, Malaysia, Singapore and Taiwan are the top five – but where do they get the crude that they refine into gasoline and diesel?
It’s no wonder we’re anxious about how high pump prices will be by this time tomorrow – as I write this, speculation suggests a hike of PHP 10 per liter of diesel, and PHP 6 per liter of gasoline. We all know the domino effect of this on transport and logistics costs, whether it be by land, sea or air. Expect to see higher prices if the conflict does not let up any time soon. Also looming is the impact on our electricity, considering that roughly a third of our energy supply is derived from imported oil. The impact on the productivity of our economy, particularly in manufacturing, should not be underestimated.
Unfortunately, there really is little we can do. It is reassuring to hear that the government is exploring reducing, or suspending, the imposition of fuel excise tax to alleviate the burden on consumers and businesses – but this should be done urgently. This would go further than the Department of Energy’s go-to last year of staggering price increases across the week. But reducing the impact of oil price shocks on our economy is a long process. This means continued investment in transport infrastructure that would reduce friction and delays in the movement of goods. This means targeting other unnecessary costs, such as LGU pass-through fees, or whatever they’re calling it these days.
I was privileged to be part of the Department of Trade and Industry’s training program for their regional leadership a couple of weeks ago, arming them with a better appreciation of supply chain and its impact on the competitiveness of businesses small and large – and allowing them to better intervene in such issues at a regional and provincial level. The hope is that this “cadre” of “supply chain specialists” would be, as I said during my presentation, “advocates for supply chain within their communities”. As big-picture issues threaten to overwhelm our businesses and eventually increase costs for consumers, it is important that there are eyes and ears on the ground that can identify what drives costs not just at a macro level, but at a micro level, too – whether it be higher fuel costs, or undermaintained roads, or lack of access to logistics expertise. This is to better make interventions that go far beyond a province’s borders.
The Philippines is heavily hit by what’s going on half a world away; why can’t we make things better for everyone by starting at the provincial level? This may be a long game too, but I personally hope that with more advocates at every level, we can be better prepared for the shocks that are headed our way, now and in the future. Rising oil costs may not be helped, but everything else can be.
Henrik Batallones is the marketing and communications director of SCMAP, and editor-in-chief of its official publication, Supply Chain Philippines. More information about SCMAP is available at scmap.org.
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