Oil Crisis

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The US-Israel conflict with Iran is disrupting crude oil supplies and pushing prices for gasoline higher. Back in the oil crisis years of the 70s and early 80s, the blockage of the Strait of Hormuz was the worst nightmare we at the Ministry of Energy considered in our contingency planning. I can’t believe I am seeing it happen nearly 50 years later.

President Trump suggested the war could last a few weeks or even months. And with the Arab nations angered by Iran’s bombing of their countries, the danger of a truly prolonged shooting war looms.

Where does that put us, a poor developing country still dependent on oil for transportation?

Early this week, the Department of Energy (DOE) claimed that the country has, on paper, a national oil inventory of 50 to 60 days of consumption.  That’s theoretical. The mandated minimum inventory requirement for our single refiner is 30 days, and 15 days for importers.

The independent importers typically replenish their inventory based on a weekly cycle, though this can vary depending on their storage capacity. If the market gets tight as the war prolongs, it is unlikely these importers will be able to replenish their stock to meet the minimum required level.

The 30-day minimum inventory requirement for Petron only covers its own market requirements, not the entire national demand. Petron holds roughly one-third share of the national market.

Our situation today would have been a lot worse if we didn’t have the Petron refinery. The two other refineries in Batangas run by Caltex and Shell have long ago shuttered because it was more profitable and easier for the foreign oil companies to import products.

The wisdom of our decision in December 1973 to take over the former ESSO refinery in Bataan has time and again been validated. And after Petron was privatized, Ramon Ang of San Miguel kept the refinery running even if merely importing finished products, like his competitors, made more business sense.

RSA saw the national interest and he even invested $2 billion to upgrade the refinery to produce the white products we need most. His competitors thought he was nuts.

Because Petron keeps a crude oil inventory, there were times when they lost a lot of money after product prices significantly declined before they could process and sell. Their competitors who only buy products on a weekly basis can better manage profitability because of the limited time frame between acquisition and sale.

I have, in this column, often urged our government to ask Petron to increase its crude oil inventory to provide a strategic stockpile to cover situations like what we have now. Of course, Petron must be compensated for inventory carrying costs including exposure to market pricing risks.

An energy official said supply is less of a concern than price. That’s stupid. Experience shows supply is the major concern in a crisis like this. Price is take-it-or-leave-it.

Diversification of supply sources is nice to hear but not an assurance. What do we do if the oil market tightens so much that there is little available supply we can buy?

We took that possibility too in the old Ministry of Energy and did two things: prepared for rationing (wrote the rules and printed the ration coupons) and helped organize the ASEAN government oil companies into the ASEAN Council on Petroleum (ASCOPE). We signed sharing agreements that gave member countries priorities in buying available supply from ASEAN countries that are oil producers.

It is good to know there is still an active program known as the ASEAN Petroleum Security Agreement (APSA). In response to the current Middle East crisis, we should be able to call on this agreement. But it is not an assurance.

Under this “sharing” mechanism, if an ASEAN member state experiences a “critical shortage” (defined as a shortfall of at least 10 percent of its normal domestic requirement), it can officially request assistance through ASCOPE.

But because these countries’ exports are often tied up in long-term commercial contracts, “sharing” under APSA is done on a voluntary and commercial basis. That means, the “distressed” country (like the Philippines) must still pay market rates, which are currently spiked by the war.

Were it not for Trump’s Iran war, oil prices should be lower this year because of what the International Energy Agency calls “a massive supply overhang of nearly four million barrels per day by mid-2026.”

If the war persists into its third week, the “nightmare scenario” takes hold. J.P. Morgan analysts warn that a disruption lasting more than three weeks would exhaust regional storage and force production shutdowns, likely driving prices to $110 to $120 per barrel.

A prolonged conflict in the Middle East, Maybank IB warns, has the potential to damage the Philippine economy through lower OFW remittances, magnified by higher inflation amid rising oil and energy prices.

“Growth could further decelerate and hurt corporate earnings as the conflict threatens to affect both the demand and supply sides of domestic consumption.”

The Philippine peso will weaken as the trade deficit can potentially widen.

This war is simply not good for everyone.

Alran Bengzon

I just want to take a moment to honor the late Dr. Alfredo Bengzon, former secretary of Health. He championed the landmark Generics Drugs Law, which required the use of generic names in prescribing medicines, making health care more affordable for Filipinos.

Outside of medicine, “Alran” was a key and a tough negotiator in wrapping up the presence of US military bases in the Philippines.

“Alran” founded the Ateneo School of Medicine and Public Health and transformed Medical City into a premier health care provider.

I once joined his helicopter inspection tour of DOH facilities in Southern Luzon. His management by walking around and seeing things on the ground should be required of all public officials. Today, the country badly needs public officials with his love of country and action orientation. He will be missed.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco