The attack on Saudi oil facilities last week serves as a reminder that crude prices can easily shoot up at a moment’s notice. Oil prices in the world market surged nearly 15 percent Monday in a knee-jerk reaction to the series of drone attacks on two facilities of Saudi Aramco in Saudi Arabia.
The strikes immediately knocked out 5.7 million barrels per day of Saudi’s oil production, or 6 percent of the global output. Saudi Arabia’s production cutback is significant, being the world’s biggest crude exporter.
The Philippines is one of the most vulnerable nations to higher oil prices. It imports 76 percent of crude imports from the volatile Middle East region, with nearly 40 percent of the volume supplied by Saudi Arabia.
Fortunately, the incident did not elicit immediate response from Saudi Arabia and the United States. The US has blamed Iran for the attacks despite the claim of Iran-backed Houthi rebels in Yemen that they were responsible for the assaults.
Oil prices in the world market stayed near $60 a barrel after hovering just above $50 in recent weeks prior to the attacks on Saudi Arabia. The prices seem to be holding, but oil traders are understandably nervous and monitoring closely the development in the tinderbox region.
The Philippines, meanwhile, has remained conservative on its assumption of oil prices relative to its inflation rate target. Bangko Sentral ng Pililipinas Governor Benjamin Diokno said the government would stay within its inflation target of 2 percent to 4 percent in 2019 as long as oil prices did not exceed $85 per barrel.
But the Philippines’ macro-economic assumptions could easily backfire if the Middle East situation deteriorates, or if the US and its allies in the region launch a counter-attack on Iran. Oil prices in the world market could then surge to as high as $100 a barrel if the situation escalates and draws other nations to the conflict.
Prolonged high oil prices will induce a slowdown in the global economy that will adversely affect developing countries like the Philippines.
The geopolitical tensions in the oil-rich Middle East are also a reminder that countries heavily dependent on imported oil should continue their program to exploit non-fossil fuels and renewable sources of energy. The conflict in the Middle East has no short-term solution yet and no country can control the vagaries of oil prices.