Philippines – Strait of Hormuz closure: Impact of higher oil prices and more
Key Takeaways
- Philippine peso is vulnerable amid Strait of Hormuz closure risks
- USD/PHP could rise above 60 if Iran conflict persists and Strait remains closed
- Oil prices exceeded US$100 per barrel at time of writing
Peso vulnerability and forecasts
MUFG Research warns the Philippine peso is vulnerable if the Iran and Middle East conflict is sustained and the Strait of Hormuz remains closed.
“- We see the Philippines Peso as vulnerable and USD/PHP possibly rising above the 60 levels if the Iran and Middle East conflict is sustained and the Strait of Hormuz remains closed, with oil prices already reaching above US$100/bbl at the time of writing: While we do not yet know how the Iran and Middle East conflict will play out from here, it’s important to stress our current base case USD/PHP forecast of 58”
It notes oil prices were already above US$100/bbl at the time of writing.
The report states its base case USD/PHP forecast of 58.00 by 4Q2026 assumes a resolution after March 2026 and oil prices falling toward US$70/bbl.
Its model-based estimates show USD/PHP could range 59.00-60.00 with US$90/bbl oil and 60.00-61.00 with US$100/bbl oil.
MUFG says USD/PHP could rise above those levels if that oil path were coupled with a stronger US dollar and/or a hawkish Fed.
MUFG also notes the Bangko Sentral ng Pilipinas (BSP) could choose to pause or even hike policy rates, which would provide some offsetting support to the peso.
However, the firm’s base case for BSP policy remains two cuts to 3.75% in June and October predicated on the crisis resolving by March 2026 and oil falling to US$70/bbl by 2Q2026.
Strait of Hormuz impact
MUFG highlights three direct energy-supply stress areas from a prolonged Strait of Hormuz closure: crude oil, refined petroleum products, and natural gas and natural gas liquids (LNG/NGLs) such as LPG/propane.
The report says 95% of the crude oil the Philippines imports, and on average 65% of the crude oil Asia imports, comes from the Middle East and is subject to the Strait of Hormuz chokepoint.
The report notes the Philippines imports only 3% of its refined product needs directly from the Middle East.
It warns that regional refinery run reductions and export restrictions could cause shortages in jet fuel, diesel and gasoline.
The Philippines’ President has said the country has around two months of petroleum inventory.
For natural gas and associated products, MUFG reports 91% of propane/LPG imports and 35% of imports of natural gas liquids come from the Middle East and that virtually all natural gas supply from the Middle East is subject to the chokepoint.
Philippines energy and economic risks
MUFG warns indirect spillovers could create a stagflationary environment for the Philippines, with higher inflation and weaker growth affecting manufacturing, transportation, travel and food production.
“- We see the Philippines Peso as vulnerable and USD/PHP possibly rising above the 60 levels if the Iran and Middle East conflict is sustained and the Strait of Hormuz remains closed, with oil prices already reaching above US$100/bbl at the time of writing: While we do not yet know how the Iran and Middle East conflict will play out from here, it’s important to stress our current base case USD/PHP forecast of 58”
It cites fertiliser and food risks, noting the Philippines imports 7% of fertilisers from the Middle East, India 40% and Thailand 34%, while globally about 15% of fertiliser and 20–30% of urea-based fertilisers depend on the Middle East.
It cites electricity risks from LNG shortages pushing coal demand and notes 50–60% of Philippine generation depends on coal.
It highlights supply-chain exposure despite limited direct trade links, with about 1% of non-energy exports and 0.5% of non-energy imports tied to the region.
MUFG estimates every US$10/bbl oil price rise cuts GDP by ~0.2 percentage points and raises inflation by ~0.6 percentage points.
Its current GDP forecasts are 4% for 2026 and 6% for 2027, but a sustained US$100/bbl scenario could lower growth to 3.7% in 2026 and 5.7% in 2027, while US$130/bbl could see growth at 3.4% and 5.4% respectively.
The report also estimates every US$10/bbl increases the current account deficit by 0.4–0.5% of GDP, with a US$100/bbl scenario implying a deficit near 3% of GDP.
It expects some widening in Philippine CDS spreads though less than during COVID or the Russia/Ukraine war.
The report explicitly states uncertainty about how the conflict will play out and that its base-case assumptions could change.