Why fuel prices in Philippines stay high despite Hormuz deal

MANILA, Philippines — The Marcos administration's arrangment with Iran to let Philippine-bound vessels move safely through the Strait of Hormuz was a useful diplomatic win.

It addresses a major vulnerability for the Philippines, which relies heavily on Middle East oil flows. By ensuring that shipments can keep passing through one of the world’s most critical energy chokepoints, the deal reduces the risk of a sudden supply shortfall.

The deal helps avert the worst-case scenario on the side of the Department of Energy and government—that of not having fuel at all.

“This is risk management because in a time of global tension, risk reduction is already a meaningful gain,” Energy Secretary Sharon Garin said on April 14.

But officials and analysts say that is only part of the equation.

"Safe passage supports supply stability, but local prices are still tied to global oil markets," AB Capital Securities' research arm said in its commentary.

That distinction is crucial. While the arrangement helps keep tankers moving, it does not lower global crude prices or reduce added costs tied to conflict risk, including higher shipping insurance and premiums.

These make it unlikely to deliver instant results at the pump to benefit Filipino motorists facing soaring prices.

Price taking, not price making

Oil prices are set in global markets, where geopolitical tensions quickly feed into costs. Even if cargoes move uninterrupted, traders still price in uncertainty surrounding the Strait of Hormuz, a corridor that carries roughly a fifth of the world’s oil supply.

That risk premium flows through the supply chain, from crude benchmarks to refined fuel and eventually to local pump prices.

For import-dependent economies like the Philippines, the exposure to global shocks is direct and not cushioned. 

The Department of Energy has said about 98% of the country’s crude oil imports come from the Middle East, making the country a price taker rather than a price setter.

Moreover, most refined products consumed locally are sourced from refineries around Asia that also depend on Gulf crude. The Philippines, after all, is host to only one refinery—that of Petron Corp. in Bataan.

Breathing room, not relief

The route may be safer, but the fuel moving through it remains expensive. The underlying economics that affects ordinary Filipinos and motorists remains unchanged.

That means pump prices will continue to track global oil rates despite the government's diplomatic gains, with energy officials forecasting diesel to reach P170 per liter.

As of Monday, April 6, as Filipinos return to urban areas and workplaces from the Holy Week holidays, oil benchmarks have climbed further with US-based Brent crude above $110 as the Middle East conflict continues.

This could have a dual effect on affordability of goods and services in the Philippines. "If Brent sustains above US$110 or trends higher, inflation could exceed 4% in the near term," AB Capital's analysis read. — Camille Diola