US-Iran tensions to cause oil price hikes, impact OFW remittances

Increasing tensions in the Middle East following the killing of Iran's top military leader during a US airstrike in Baghdad could lead to a possible increase in inflation and negatively impact remittances of overseas Filipino workers (OFW), the country's chief economist said.

Socioeconomic Planning Secretary and National Economic and Development Authority chief Ernesto Pernia explained in a text message that escalating tensions in the region would have an impact on the Philippine economy through "likely oil price hikes in the short run and OFWs cum remittances over the longer run if tensions escalate further and persist."

Top Iranian commander Qasem Soleimani was killed Friday in a US strike on Baghdad's international airport, Iran and the US confirmed, in a dramatic escalation of tensions between the two countries. 

The Pentagon said US President Donald Trump ordered Soleimani's "killing," after a pro-Iran mob this week laid siege to the US embassy.

Iran, on the other hand, promised to avenge Soleimani, Tehran's most prominent military commander and the architect of its growing influence in the Middle East. 

"There will be an impact if this thing escalates," Security Bank chief economist Robert Dan Roces likewise said in a text message.

"Oil prices may go up and nudge inflationary tendencies locally once it translates to pump prices. And having a huge deployment of workers in the Middle East, demobilized workers will have an impact on remittances," Roces said.

The potential surge in global oil prices due to tensions in the Middle East, could add to the burden of Filipino consumers as the last tranche of the excise tax hike under the tax reform law begins at the onset of 2020.

Fuel pump prices could increase between P1 and P1.50 per liter due to the additional levies imposed in light of the Tax Reform for Acceleration and Inclusion (TRAIN) law.

The law, however, provides a suspension mechanism for tax hikes should global crude oil prices go beyond an average of $80 per barrel in three consecutive months.

Nevertheless, Roces said the Philippines was "in a good place in the sense that BSP (Bangko Sentral ng Pilipinas) has very high international reserves that will allow us to ride out some volatility in forex (foreign exchange)." — DVM, GMA News