The unprovoked United States (US)-Israel attack on Iran is causing economic shocks on the Philippines and the rest of the world. The measures the Marcos Jr administration takes to address these have to be weighed against the magnitude of the problems at hand. Too often, responses are rolled out more to give the appearance of swift action than to provide general relief or to transform the economy for the better.
A clear picture emerges from numbers laid out plainly—an economy over-dependent on imported oil, a deregulated industry dominated by a few price-making firms, and a regressive tax system that just pushes fuel prices even higher. In normal times, the resulting costs ripple through transport, food, electricity, and other basic goods and services. During global shocks, they swell into a tsunami.
And yet, at any time, the government always has the power to decide who bears the burden. It shouldn’t be households whose incomes are already squeezed by rising prices while wages and earnings lag behind.
Oil dependence
Modern economies run on large and continuous flows of energy. They are essential in literally every stage of economic activity, and the more abundant and affordable energy is then the greater, too, is the tendency for production to expand.
The Philippines relies on oil for over half (50.8%) of its total final energy consumption, with oil accounting for 19,753 kilotonnes (kTOE) of the total 38,898 kTOE consumed in 2024. Virtually all (98.8%) of this oil is imported—27.7% from the Middle East (mainly crude oil) and 71.1% from East and Southeast Asia (mainly refined petroleum products).
The transport sector uses the largest part of this at two-thirds (65.5%) of total oil consumed, followed by services (11.9%), industry (7.6%), households (7%), agriculture (1%) and others. The transport sector is extremely dependent on oil because this remains the most portable energy source—95.5% of energy consumed in the sector comes from oil products. Road vehicles are the biggest user and account for 90.7% of energy consumption in the sector.
This extreme dependence on imported oil makes the economy highly exposed to global price volatility and geopolitical shocks beyond the country’s control. Reducing this vulnerability means steadily reducing the economy’s reliance on imported oil, which takes time. The deliberate diversification of energy sources and reduction in oil use requires expanding renewable energy, electrifying transport, and expanding public mass transport and freight railways.
Pricing for profit
The biggest problem with the oil industry is that oil is treated as an ordinary commodity to be priced by private firms and the market, rather than a strategic input for transport, agriculture, households and industry. This set-up was formalized by the privatization of Petron in 1993, and by the oil deregulation laws in 1996 (RA 8180) and as amended in 1998 (RA 8479).
Since then, the country has had three decades of overdependence on oil and imports, an oligopolistic price structure with opaque pricing, and burdensome pass-through of global price shocks affecting poor and middle-class Filipinos the worst. The traditional “Big Three” oil firms control some 45.5% of the market—Petron (27.8% of petroleum demand), Shell Pilipinas (14.4%), and Chevron Philippines/Caltex (3.1%). The balance is taken up by assorted new players with the largest being Unioil Petroleum Philippines (9.9%), Insular Oil Corp. (6.4%), Seaoil Philippines (6.3%), Jetti Petroleum (3.3%), and Phoenix Petroleum (2.5%).
The oil deregulation law has to be repealed to overturn the premise of deregulation of such a strategic commodity, and a new law regulating the oil industry enacted.
A first step is the government making pricing more transparent. Oil firms should disclose their import prices, freight and storage expenses, refining and blending costs, inventory costs, wholesale and retail margins, and any transfer pricing to the government and the public. The anti-corruption drive last year showed how potent the public and civil society can be to check abuses, if only enough information is made publicly available.
The government also has to have mechanisms for price stabilization including regulated pricing bands, authority to smooth pricing, a petroleum price stabilization fund learning from past errors, and a real strategic petroleum reserve beyond firm-level inventories.
The new law can also institutionalize mechanisms for automatic support to sectors vulnerable to oil price shocks like public transport, delivery services, agriculture and fishing, and food logistics, as well as for suspending taxes on oil and other commodities. These are important to prevent oil price shocks from cascading into rapid inflation.
But even these will not be enough. The government should also have a view towards having greater involvement in the industry including importing fuel directly, actively seeking government-to-government supply contracts, and developing public capacity in refining, storage and distribution. For instance, a strong state-owned oil firm will be an effective lever for regulating the industry not just according to market price movements but for the public good.
Ultimately, the strategic direction should be toward public ownership across both upstream and downstream segments so that oil is managed as a public utility serving national development rather than as a commodity priced primarily for private profit.
Regressive taxation
The government exploits the generally inelastic demand for oil products to generate revenues. The various petroleum products have excise taxes ranging from Php3 to Php10 per liter or kilogram, depending on the product. Among the most commonly used items: gasoline has an excise tax of Php10/liter; diesel, fuel oil and LPG of Php6/liter; and kerosene and aviation fuel of Php4/liter. There is also a 12% VAT on oil products, which is also applied to the excise tax.
The 12% VAT in the Philippines is the highest in Southeast Asia, compared to: Indonesia (11%); Cambodia, Laos and Vietnam (10%); Singapore (9%); Malaysia (8%); and Thailand (7%). The country’s oil excise tax is in the middle between the equivalent of a low Php2.30 (gasoline)-Php2.50 (diesel) in Indonesia to highs of Php10.80 (diesel) in Thailand and Php33.80 (gasoline) in Singapore.
In 2024, the government collected Php304.3 billion in oil tax revenues—Php178.5 billion from the oil excise tax and Php125.8 billion from the oil VAT. This accounted for 17.5% of Php1.74 trillion in total excise and VAT revenues for the year.
IBON estimates that the poorest 60% of families pay Php420 on average monthly in combined oil VAT and excise taxes, and the highest income 20% around Php1,225 on average monthly. The regressiveness of these oil taxes comes from how they account for a larger share of the income of the poorest groups than of the higher income groups.
Household burdens
Domestic policy responses to the oil shock must start with those who bear the brunt—17.3 million poor (14.3 million) and borderline (3.4 million) Filipino families, by the last count of the Social Weather Stations (SWS). Many of these families rely on fuel-intensive livelihoods. The most immediately and severely affected are drivers and small operators in the transport sector with: 1.7 million tricycles; 250,000 jeepneys; 150,000 delivery motorcycles; 45,000 motorcycle taxis; and over 60,000 UV Express and TNVS.
Next in line are those whose production costs rise sharply with higher fuel prices—some 10 million farmers and farmworkers, and 1.2 million fisherfolk. Inadequate support for them will mean not just greater rural poverty but also higher food prices for the rest of the country.
In the war zone, the Middle East hosts 2.1 million overseas Filipinos (19% of all overseas Filipinos)—of which 1.5 million are temporary/irregulars (29% of all temporary/irregulars)—as of 2024. Last year, 1.1 million or 41% of 2.7 million deployments were to the Middle East—over a million of whom were to Saudi Arabia, UAE, Kuwait, and Qatar, which are all at risk from hosting US military bases. These overseas Filipinos accounted for US$6.4 billion in remittances (18.1% of the total worldwide) in 2025.
The Marcos Jr administration must ensure that those with the least resources and the least capacity to absorb rising costs are not forced to carry the heaviest burden of a crisis not of their making. By the same logic, those with greater resources and stronger capacity to deal with the shock should be expected to contribute their fair share.
The government has announced transport support, rice subsidies, toll discounts, OFW assistance, and other measures. On paper, the numbers may seem substantial but the real test is simple: how much support, for how many of the Filipinos in need, and for how long?
The announced measures are small and, considering the scale of the problems at hand, not even additional. When more details are released, it will be important to see how much of these are real new responses to the emerging situation and not just recycling of already existing social assistance programs.
Without real commitment, the public can hardly be faulted for seeing supposed responses as more tokenistic than sufficient—too little support, for too few Filipinos in need, and for too short a time.
From numbers to solutions
What is to be done? The attention to the centrality of oil to the Philippine economy and to the exaggerated impact of the shock because of misguided oil industry deregulation is a moment of opportunity. Domestic oil prices are not an act of God but can be managed by a government with the will to control profiteering oil firms and the policy wherewithal to act on this.
The oil industry has to be reformed. Government’s powers over the strategic oil industry have to be restored, and used democratically and responsibly. This process can be started immediately by demanding and enforcing full transparency in domestic pricing by the oil firms. Empowering the public to check profiteering can be the first step to reregulating the oil industry towards eventual downstream and upstream nationalization.
It is also a time for rapid relief. The shock at hand is so large, by whatever direction the conflict takes, that an array of responses is needed to have meaningful impact.
Transport groups need immediate subsidies—the oil price spikes could result in income losses from 10% to as much as 50%, depending on the transport service involved. Transport subsidies from Php3,000-10,000, depending on the segment, will not completely compensate for extra costs but can cushion the income shock and prevent sharp fare increases that would further burden consumers. This would come to about Php12.2 billion monthly, or as long as oil prices remain elevated.
Vital food producers also need support from rising fuel costs. Farmers, farmworkers and fisherfolk depend on fuel for irrigation pumps, farm machinery, transport of produce, and fishing boats. Emergency assistance of Php7,000 per farmer and Php8,000 per fisherfolk can mitigate rural poverty while preventing higher production costs from quickly turning into higher food prices. This would amount to about Php79.6 billion for every round of support.
Poor and vulnerable families also need direct relief as the oil shock works its way through the economy and drives up the prices of basic goods and services. Inflation at 2.4% in February will likely double to at least 5% in the coming months if global oil prices sustain at US$100-110 per barrel, and could spike to as much as 7.5% or even more at US$140-150 per barrel. Emergency cash grants of Php3,000 per distressed family will help them cope with rising food, transport, and electricity costs. These grants come to Php53.1 billion per round.
Price controls on basic goods including on socially sensitive oil products like diesel, gasoline, kerosene and LPG should be considered. While the Price Act (RA 7581) cannot directly control oil prices, it can curb profiteering and excessive markups in food and other essentials amid increasingly volatile economic conditions. Wage hikes—such as through various bills pending in Congress—would help wage-earning households protect purchasing power, while supporting informals and small enterprises that households patronize. This will also boost aggregate demand and growth through multiplier effects.
Who pays taxes
Amid cost-push inflation, removing VAT and excise taxes provides immediate relief for the largest number. These consumption taxes are regressive and fall most heavily on poor and middle-class households whose spending is concentrated on basic needs.
IBON initially estimates that suspending the oil excise tax can add an average of Php250 monthly to the pockets of the poorest 14.3 million families, rising to Php420 if the VAT on oil is also suspended. To get an idea of how much of scarce family income the government collects from poor and borderline Filipinos through these regressive consumption taxes, removing them could increase the disposable income of families in the lowest six income deciles by anywhere from Php2,300 to as much as Php3,700 per month on average.
The tax relief will also benefit higher-income groups and so has to be paired with complementary progressive tax measures. This includes a tax on billionaire wealth—generating some Php500-600 billion in revenues annually—as well as increasing the personal income tax (PIT) on the richest families and restoring higher corporate income tax (CIT) rates to 30% for large corporations.
Wasteful politically driven pork-barrel allocations in the 2026 budget can also be cut. For instance, local infrastructure projects can be cut by 20% and funds realigned toward social protection, while also removing lawmaker discretion over social assistance distribution. Tackling corruption is always an ongoing imperative but more so when public resources are so urgently needed.
Shifting the revenue burden toward progressive direct taxes on billionaire wealth, high-income families, and large corporations will help stabilize demand as well as economic growth. This will protect the purchasing power of the majority while only drawing on those with the greatest capacity to contribute to government revenues.
The scale of intervention needed will require Php145 billion pesos in an initial round of support. Such spending is justified to protect livelihoods, stabilize prices, and shield poor and vulnerable Filipino families from the worst effects of the oil shock, while also helping avert a worse economic slowdown this year.
Finally, the acuteness of the crisis should also spur the country’s long-overdue long-term energy transition. Lowering the economy’s structural dependence on oil will go far in reducing its vulnerability to oil. This will also improve energy security and advance climate goals. The state has to lead in and invest in critical reforms: increasing electrified private and public transport, expanding affordable public mass transportation, and more aggressive shifts to renewable energy.
The end
In the end, the real policy question for the Marcos Jr administration is simple: who will be made to bear the burden of the crisis. Committing to the public good means ensuring that those most able to contribute shoulder more of the adjustment so that those most in need are protected.
However, there is strong reason to believe that government policy remains business as usual. The wealthy and large corporations are shielded—including the oil firms—while the costs are passed on to ordinary Filipinos. The responses announced so far are too small for the scale of the crisis faced by tens of millions of Filipinos already struggling with low-incomes and rising prices even before the US-Israeli attack on Iran that is causing so much distress.
The moment demands the opposite—undertaking now, in the midst of crisis, the reforms that should have been pursued even in normal times: stronger public regulation of the oil industry, fair taxation and increasing family incomes, and transitioning to cleaner energy and greater self-sufficiency.