- On 24 March 2026, Philippine President Ferdinand Marcos declared an energy emergency as a result of risks to the country’s fuel supply and energy stability, in response to the rapid rise in oil prices caused by the blockade in the Strait of Hormuz.
- Indeed, the Philippines is among the Asia countries most dependent on imported oil and has seen very high energy inflation since the outbreak of the conflict. The impact has been brutal: headline inflation has quickened, fuel costs have soared, fertilizers are in short supply, etc. The situation has also revealed the country’s extreme vulnerability to economic shocks six years after the outbreak of the Covid crisis, which had already deeply damaged the Philippine economy. The government has once again demonstrated its difficulty managing a crisis under tight budgetary constraints.
- The shock also comes at a time of political crisis at the highest levels of government, with impeachment proceedings underway against the vice president and likely candidate in the next presidential election, Sara Duterte, daughter of the former president. Her disagreement with the Marcos clan highlights both the influence of the great family dynasties on national political life and the country’s political instability. This instability also prevents the country from developing a coherent and consistent international stance and means its approach to international relations changes with each new government.
- The crisis has revealed the country’s structural weaknesses: low productivity in the agricultural sector, a lack of competitiveness in an extremely competitive regional environment, reliance on imports of essential goods, etc. The blockade in the Strait of Hormuz exacerbates each of these vulnerabilities.
The Hormuz shock exposes reliance on imports
The blockade of the Strait of Hormuz highlights the Philippines’ dependence on certain imports: energy, fertilisers and inputs needed by some value chains. It reveals the weaknesses of an excessively unproductive agricultural sector and an insufficiently developed industrial sector.
The Hormuz shock represents a major disruption to the value chains in which the country is embedded. Upstream of these value chains are, of course, oil and gas (which accounted for 13% of total Filipino imports in 2025), but also some of their derivatives such as polyethylene and other lightly processed raw materials, such as aluminium. Large quantities of these two materials are notably used not only in industry but also in the production of plastic bags – an activity in which Southeast Asia is the world leader but whose low margins are immediately and directly affected by any increase in input prices.
Due to its limited industrial capacity, largely confined to the assembly of low-value-added electronic products, the Philippines remains dependent on other countries for many intermediate and consumer goods. The Hormuz shock and its impact on logistics costs (particularly container shipping costs), as well as the resulting delays, are inevitably affecting Filipino industry and import-dependent sectors, and are likely to deepen the country’s trade deficit.
Another explanation for the country’s reliance on imports is its inability to ensure its food security. Low agricultural productivity, combined with the fact that the national territory consists of thousands of islands, makes providing food for 110 million inhabitants particularly challenging.
The Philippines is doubly affected by the external environment. On the one hand, domestic production is undermined by the country’s high reliance on imported fertilisers, mainly from China and the Gulf states, with China alone supplying 37% of these imports. However, China has announced heavy restrictions on fertiliser exports to avoid shortages in its domestic market, leaving Filipino producers powerless in the face of a lack of alternative suppliers and rising prices just as the second rice planting season (October−November) approaches.
On the other hand, the Philippines must secure the supplies needed to make up for the shortfall in domestic production. While the Philippines generally turns to Thailand and Vietnam (especially for rice), these countries, also hit by rising fertiliser prices, are also likely to put in place restrictions if their production falls. The entire region is also threatened by the El Niño climate phenomenon, which could increase pressure on the agricultural sector.
Lastly, higher energy prices and supply difficulties are weighing on the services sector, the traditional engine of the Philippine economy, and particularly tourism. The transport sector (domestic air, boat and bus travel), at the heart of island tourism, has borne the full brunt of higher fuel prices.
Insufficiently diversified energy imports
Against this turbulent backdrop, finding new suppliers is a key priority for the energy sector: Philippine energy imports are insufficiently diversified, exacerbating the impact of a shock such as that generated by the blockade of the Strait of Hormuz. Nearly 40% of the country’s crude oil and 20% of its gas come directly from the Gulf (Saudi Arabia, Iraq, Qatar and the United Arab Emirates).
Still highly carbon-intensive, with coal and oil accounting for 80% of its energy mix, the Philippines is among those countries the least prepared to deal with an energy crisis. Unlike its neighbours, the vast majority of which had followed the International Energy Agency’s recommendations (maintaining stocks equivalent to 90 days’ worth of energy imports), the Philippines had no strategic reserves. This lack of reserves is compounded by the country’s particular geography, with its thousands of islands complicating supply logistics.
This lack of forward planning led the Philippine authorities – the only ones in the region to have taken such a step – to declare an energy emergency. The government then announced a number of measures as part of its emergency response: a four-day week for civil servants and restrictions on non-essential travel, free public transport in some cities for students and workers, and reduced fuel consumption for public bodies.
A country thrown off balance by the crisis
The number one consequence of the blockade: inflation
Given its fiscal position, more precarious than that of many of its neighbours (its budget deficit equated to 5.6% of GDP in 2025), the country had to focus on securing oil supplies; it therefore did not subsidise fuel prices nationwide. Instead, the government put in place a $333 million emergency fund to finance crude oil purchases, and limited subsidy programmes to drivers, fishermen, farmers and the public transport sector. However, this spending restraint led to a sharp spike in fuel prices, affecting the entire population.
In June 2026, year-on-year inflation in the Philippines came in at 6.4%, down from 6.8% in May, bringing the average for the first six months of the year to 4.8%, well above the 1.4% observed a year earlier. Food inflation for June stood at 5.2% (compared with 5.7% in May), highlighting the impact of the Hormuz blockade on the agricultural sector. By way of comparison, food inflation in June 2025 came in at just 0.1%. In June, the price of rice – the cornerstone of the country’s food security – was 15% higher than a year earlier, compared with 15.6% higher year on year in May.
Meanwhile, core inflation, which excludes energy and food, came in at 4.4% in June and 4.6% in May, compared with 2.2% for the same period a year earlier, showing that the effects of the Hormuz blockade were already rapidly feeding through into the cost of living.
Faced with this quickening inflation, the central bank interrupted the monetary easing cycle that had begun in mid-2024, raising interest rates by 25 basis points in April and again in May, its first rate hikes since October 2023. Interest rates currently stand at 4.75% but there could be further hikes before the year is out. While this policy may not be very effective in combating imported inflation, it is mainly intended to limit the peso’s depreciation against the dollar, which has accelerated since the beginning of the conflict.
In addition to central bank monetary policy, the peso continues to be supported by remittances from Filipino workers abroad. A quarter of them work in the Gulf states, raising fears that the conflict could threaten their jobs (many are employed in the tourism industry, for example). Under normal circumstances, their remittances equate to 10% of GDP. While no significant decline has yet been observed, a close eye needs to be kept on these remittances given their importance to exchange rate stability, limiting the current account deficit and supporting domestic consumption.
The peso has nevertheless lost nearly 6.5% against the dollar since the start of the conflict, with an immediate impact on the current account balance. The current account deficit stood at $2.7 billion in March 2026, just after the conflict broke out. This was the largest monthly current account deficit since May 2022.
Growth outlook darkens
The protracted conflict represents a genuine shock to the government’s growth targets. The medium-term growth plan called for growth of between 6% and 7% over the period 2026−2028. Despite the slowdown observed in 2025 (with growth coming in at 4.4%), this ambitious target still looked achievable and was expected to pave the way for a return to sustainable growth following the Covid-19 crisis, from which the Philippine economy had emerged considerably weakened. In October 2025, the IMF was still forecasting 2026 growth of 5.7%, subsequently revised down to 3.9% in its July 2026 World Economic Outlook.
These forecasts are mainly explained by the impact of the shock on the traditional drivers of growth: reduced private consumption and public investment, a downturn in tourism, etc. A slowdown in growth would also increase the risk of a serious deterioration in the fiscal position of a country whose public finances are already under pressure. Like many developing countries, the Philippines does not yet have a sufficiently broad tax base. Slowing growth would inevitably reduce government tax revenues against a backdrop of higher public spending, squeezing the public finances from both sides. Rating agencies in particular have highlighted this fiscal risk: at the end of April, Fitch downgraded the country’s outlook from stable to negative.
A crisis that reveals the country’s structural weaknesses
The agricultural sector: a real Achilles heel
The agricultural sector is still vital for the country, despite a relative decline: it accounts for just 9% of GDP but still employs between 20% and 25% of the working population, reflecting low structural productivity exacerbated by cyclical shocks. This diagnosis is underpinned by a number of factors.
First, the country never completed the agrarian reform begun in 1987, after the Marcos dictatorship ended. The reform did not solve the problem of land distribution. Land remains concentrated in the hands of family dynasties and farmed by tenant farmers, and this has delayed mechanization. This situation directly affects the structure of employment: the average daily agricultural wage is just €5 and nearly 70% of underemployed people work in agriculture. The sector also relies on an ageing workforce: while the country’s median age is 25, the average age of farmers is 57.
Arable land is scarce (accounting for just 19% of the country’s total land area) and unevenly distributed (with 43% of it in Mindanao, the archipelago’s main southern island). Crops are not sufficiently diversified and agriculture remains heavily reliant on rice, a crop with very low added value that requires large amounts of water and land. Despite this high degree of polarization, domestic production remains insufficient and the country is dependent on rice imports from Thailand and Vietnam to ensure its food security.
The Philippines is thus particularly vulnerable to food inflation (food accounts for 45% of the basket used to calculate the consumer price index) and highly sensitive to movements in international agricultural commodity prices, as well as export restrictions put in place by its neighbours at times of crisis.
It is also increasingly vulnerable to climate change: the Philippines is one of the countries most exposed to extreme weather and climate events (typhoons in particular). There are also concerns this year about the impact of El Niño, which could affect crops and thereby food prices.
This climate vulnerability is also a major driver of public spending: every year, the government spends nearly 0.6% of GDP on post-disaster reconstruction, at the expense of more productive investment. Recent scandals have also revealed the extent of corruption and embezzlement of public funds, which particularly affect the very infrastructure that is meant to respond to the consequences of climate change (in particular to protect against rising sea levels). Fraud, estimated at around 4% of GDP each year, places a double burden on the public finances, which must also bear the cost of dealing with the consequences of climate disasters.
A highly competitive regional environment
The country’s main weakness, however, stems from its location in one of the world’s most competitive environments and its exposure to the resulting competitive pressures. It faces a significant backlog in terms of infrastructure, training and workforce competitiveness, hampering its integration into global value chains. Lacking Vietnam’s trained labour force, Thailand’s industrial base and Malaysia’s investment capacity, the Philippines struggles to develop a clear comparative advantage relative to its neighbours.
Increasing foreign investment in data centres and semiconductors is flowing into countries in Southeast Asia (Malaysia, Taiwan, South Korea), but the Philippines has not done enough to integrate itself into the AI cycle to reap the benefits. When it comes to exports of electronic products, which constitute the bulk of its foreign trade, the Philippines remains less competitive than other countries in the region. The country does, however, have one advantage: a particularly young population (with a median age of around 25), albeit not sufficiently trained. Its climate vulnerability also deters companies from locating production operations in the Philippines.
Charting a course in a contested geopolitical environment
A penchant for family dynasties, with implications for domestic politics
Political life in the Philippines is organised around powerful political dynasties that dominate different parts of the country, creating electoral divides that are sometimes more clan-based than ideological. Changes of government over recent decades reflect this stranglehold on political life. These dynasties notably include the Marcos family (former dictator Marcos Senior, who ruled from 1965 to 1986, and current president Marcos Junior) in the north of the country, the Duterte family (Rodrigo Duterte, president from 2016 to 2022, and Sara Duterte, current vice president) established in the south on the island of Mindanao, and the Aquino family (Corazon Aquino, president from 1986 to 1992, and Benigno Aquino, senator and opponent of Marcos Senior).
This configuration leads to heightened political conflict and chronic instability, regularly undermining the country’s credibility. The latest example is the ongoing impeachment proceedings against Vice President Sara Duterte, in part over death threats made against President Marcos. The alliance between the two families for the 2022 presidential election, seen as surprising at the time, did not last long due to the extremely strained relationship between former President Rodrigo Duterte and current President Marcos Jr.
Rodrigo Duterte is currently charged with crimes against humanity committed between 2011 and 2019, at the height of the “war on drugs”, during which he allegedly organized a system of extrajudicial killings, first as mayor of Davao and later as president of the Philippines. Under his presidency, the Philippines withdrew from and refused to cooperate with the International Criminal Court (ICC), a stance that current President Marcos appeared willing to maintain at the start of his presidency, when the relationship with the Dutertes still seemed cordial. Since the quarrels with Vice President Sara Duterte, the president’s hardline stance on non-cooperation with the ICC seems to have softened: in particular, he has stated that local police would be willing to cooperate with Interpol if an arrest warrant were to be issued.
Rodrigo Duterte was finally arrested in Manila in 2025 and is due to stand trial in November. Many observers have interpreted this shift in President Marcos’s stance as a purely tactical move aimed at undermining the Dutertes’ credibility ahead of the 2027 presidential election.
The impeachment proceedings against Sara Duterte are based on charges of not only death threats but also corruption and mismanagement of public funds during her time at the Ministry of Education.
This affair highlights another structural issue within the Philippine government: a widespread propensity for corruption and embezzlement, heightened by the need for politicians to secure their support at a local level. This system, akin to electoral feudalism, has its roots in Spanish colonisation and the system of land tenure and cultivation established under colonial rule. Embezzlement and corruption continue to have a direct impact on the public finances, generating huge losses to the public purse, equivalent to around 20% of total government revenue (source: Asian Development Bank).
An unstable geopolitical stance
The polarization of Filipino politics also affects the country’s international stance. Historically, the Philippines has been one of the United States’ most loyal allies in the region, reflecting the legacy of American colonisation from 1898 to 1946. The two countries also signed a mutual defence agreement in 1951, strengthening the Philippines’ position as a key ally in this region so close to China.
Despite this historical background, the Philippines has not always behaved as a steadfast ally of the United States. In particular, the Duterte years (2016−2022) saw a genuine warming of relations with China, which was regularly called upon to finance various infrastructure projects under its Belt and Road Initiative. However, most of the promised investments never materialised, causing the first cracks to appear. Under Marcos’s presidency, the country has returned to a stance more closely aligned with the United States, sometimes even adopting a more hostile attitude towards China, particularly over the territorial dispute in the South China Sea. Clashes between the Philippine coastguard and the Chinese navy are becoming increasingly frequent.
The need to establish a clear, coherent and consistent stance is becoming increasingly pressing; the government cannot radically change course with each presidential election. The Philippines must chart a course that balances US military protection, its own sovereignty, and friendly relations with its Chinese neighbour.
Beyond recurring climate shocks such as El Niño, which are undermining an economy heavily dependent on agriculture and tourism, the country is struggling to build the robust institutions needed for inclusive and sustainable growth. Repeated political crises and the persistence of a dynastic political system are major obstacles to the implementation of structural reforms. As long as partisan power plays continue to hamper efforts to build inclusive and effective institutions, the country’s economic development prospects will remain constrained over the long term.
Written by Romain Néouze, under the supervision of Sophie Wieviorka
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