PH vulnerability to external oil price disruptors

JUST when it appeared that world oil prices were beginning to stabilize, even encouraging local distributors to reduce pump prices by a modest amount, the unexpected halt in oil shipments by Saudi Arabia through a strategic waterway on Thursday after Yemeni rebel attacks is feared to spark a new crisis.

The Saudis announced the suspension of oil shipments through the Bab el-Mandeb Strait – the entrance to the Red Sea as they head for Europe via the Suez Canal – after Houthi rebels attacked two of its oil tankers in Yemen. Although only one of the tankers was slightly damaged by the apparent missile strikes, the Saudi Energy Ministry said that all its oil shipments through the strait would be halted “until the situation becomes clearer and maritime transit through Bab al-Mandeb is safe.”

in support of the Yemeni government against the Houthis since 2015. The Houthi rebels have several times attacked shipping in the Bab el-Mandeb Strait during the civil war that erupted in Yemen in 2014.

Saudi Arabia’s suspension of oil shipments comes even as it seeks to ramp up its oil production under pressure from the United States, and at a time of raised US-Iran tensions, Agence France-Presse reported. The news wire agency said that the Saudi-led coalition has repeatedly raised alarm that Huothi rebels threaten vessels in the Red Sea through their control of the strategic Hodeida port.

Closure of the strait to oil shipments would have disastrous economic consequences. According to data from the US Energy Information Agency, about 4.8 million barrels of oil pass through the waterway each day. About two-thirds of that volume or 3.1 million barrels per day are in outbound shipments from Saudi Arabia’s Red Sea coast; the rest are northbound shipments consisting primarily of oil from the Persian Gulf bound for the Suez Canal or Egypt’s SUMED pipeline at the northern end of the Red Sea. A report by AlJazeera said that the two ships attacked on Thursday each had a capacity of 2 million barrels of oil, but it was not known how much they were actually carrying.

The Saudi announcement caused an immediate $ 1 jump in oil prices in trading late Thursday, and according to oil industry analysts interviewed by various media outlets, even a brief interruption in daily shipments could quickly have a cascade effect.

The Philippines’ supply of petroleum is not likely to be affected in any way, but the price of oil could climb very quickly. It undoubtedly will increase in the short term, and how long and to what extent prices remain elevated will depend on how long the crisis lasts, and whether or not it worsens. There are already dark hints that a supply restriction lasting more than a week or two may bring American or European calamitous consequences for the global economy.

The Red Sea supply crisis is yet another reminder that for as much control as the Philippine government is perceived to have over the country’s economy, it is still significantly affected by external factors that often cannot be anticipated, let alone managed.

Economic policymakers may consider actions such as modifying or suspending fuel taxes, adjusting interest rates to sectors, but these efforts can only go so far.

The only real solutions are the long- term ones: promoting the use of alternative energy to reduce the country’s reliance on petroleum imports, and developing such native petroleum resources as the country has to secure at least a part of the supply requirements.

Even though the fruits of these initiatives may not be realized for generations, news such as that of Thursday should be a stern reminder that effort toward these ends must be pursued relentlessly.