THE US/ISRAEL strike against Iran aims at regime change to dominate its energy resources and decapitate its leadership. It will disrupt energy markets and penalize economic prospects worldwide – particularly in the Philippines.
On February 28, a joint US–Israel air campaign targeted Iranian leadership, missile forces, nuclear facilities, and the Revolutionary Guards’ (IRGC) infrastructure.
The opening strike killed Iran’s Supreme Leader Ali Khamenei and senior commanders. Threatened by Israel’s obliteration doctrine, Tehran is retaliating with ballistic missiles, drones, and strikes on US bases in Gulf states and Israel.
US strategy reflects a phased escalation ladder moving from decapitation and air dominance to the suppression of missiles and drones. It seeks Iran’s eventual regime collapse or “unconditional surrender.”
But this is just a prelude.
Surging economic pain
In a briefing a week ago, I projected that this unwarranted, illegal, and lethal war would have an adverse global impact. The human costs of the conflicts are climbing in Iran (over 7,300 killed and injured), Lebanon (1,100), Israel (140+), Gulf states (115). In Lebanon, 330,000-400,000 people have been displaced; in Iran, tens of thousands.
After the oil price soared to more than $90, it could climb toward $120–150 if escalation persists. Production disruptions in the Gulf energy facilities will have long-term and adverse effects on gas/LNG. In the process, inflation will climb. For every $10 oil rise, factor in 0.3–0.4% additional inflation in major economies.
In global markets, equities are falling, and energy prices are surging. If hostilities linger another full week, expect Brent oil to climb from $90-$95 to $95-$110. Gas/LNG prices could increase 30-40%. Global inflation will surge by 0.4-0.7%. At the same time, global GDP will fall by 0.1% or more.
A 1-2-month disruption scenario would raise inflation by 0.5-1.0%. A prolonged conflict could push inflation up to 7%, with a significant stagflation risk.
Oil shocks are likely to widen the Philippine current-account deficit and the rising debt burden.
Inadequate responses
On Friday, President Marcos Jr. announced a temporary 4-day work week in several government offices. As an oil crisis response, such measures have limited value.
The government is already struggling with a historical corruption scandal, which has not led to structural reforms, and an economic slowdown, which is about to worsen further. Now Manila must additionally tackle a higher import bill for energy, peso depreciation, lower consumption, and weaker investment sentiment.
The Philippines is highly exposed to Middle East energy disruptions because a whopping 98% of its crude oil imports originate from the Middle East.
Fuel costs raise transport fares, electricity, food prices, and manufacturing costs. Philippine fuel prices have already surged. But there is much more economic pain ahead.
The Marcos Jr government has also initiated repatriation efforts for the overseas Filipino workers (OFWs) in the Gulf region, with recent reports indicating hundreds have returned or are in the process of returning.
Unfortunately, that’s grossly inadequate.
Over 1 million Filipinos are at risk
Despite elevated geopolitical tensions and regional conflicts since 2023, up to 2.5 million Filipinos continue to live and work in the Middle East. The Gulf is one of the largest OFW concentrations worldwide.
Saudi Arabia alone ranks as one of the top sources of cash remittances worldwide, alongside the US and Singapore.
UAE and Saudi Arabia each host up to 1 million Filipinos, while up to 250,000 live in Qatar and Kuwait each. As of today, over 1 million OFWs face risks due to the elevated hostilities in the region.
Also, some 20,000 seafarers of all nationalities have been stranded aboard ships in the region. Since Filipinos make up a fourth of crews worldwide, this implies roughly 4,000–5,000 Filipinos among them.
Should the Iran war linger further, no plan can ensure the full safety of the Filipinos in the region.
EDCA sites as potential targets
Furthermore, concerns have been expressed about possible reverberations in the Taiwan Straits. There are 160,000-200,000 OFWs in Taiwan and 12,000 in China.
If the region, including Philippine EDCA logistics platforms enabling a Taiwan war effort, is swept by a major conflict, there is no fast way to repatriate Filipinos.
Recently, Senator Erwin Tulfo called for a review of the Enhanced Defense Cooperation Agreement (EDCA) sites, fearing that the presence of U.S. military facilities could turn the Philippines into a target for retaliatory attacks amid the escalating Iran-Israel conflict.
Historically, US military bases, whether fixed or rotational, have asserted sovereignty, which makes them and the region hosting them a target. Hence, the concern that conflict could spill over into and from US military bases in the Philippines.
But there is more to possible targeting. Manila presents itself as a peaceful neutral in the Middle East. But realities are more complex.
PH as a growth market for Israeli arms
In 2020-2024, the Philippines had three main military suppliers. South Korea’s arms transfers accounted for a third (33%) of all arms imports to the Philippines. It was followed by Israel (27%) and the United States (20%).
In Israel, the Philippines is seen as a growth market. It accounts for some 8% of Israel’s total arms exports worldwide.
Until recently, the Armed Forces of the Philippines largely bought from the Israeli Elbit Systems and Rafael Advanced Defense Systems, with key acquisitions including unmanned aerial vehicles, missile systems, air defense, artillery, maritime security, ground vehicles, small arms, and surveillance.
Many of these weapons have been battle-tested on Palestinians in Gaza’s genocidal atrocities, ethnic cleansing in the West Bank, the lethal spillovers in Lebanon and Syria, and the US/Israel war against Iran.
The Philippines’ broad military cooperation with the Israeli military proxies has exposed millions of Filipinos to risks from the Middle East to Southeast Asia.
Ironically, Manila’s recalibration in foreign affairs, which was introduced to ensure security and prosperity, could contribute to undermining both.
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China, and America Institute (USA), Shanghai Institutes for International Studies (China), and the EU Center (Singapore). For more, see https://www.differencegroup.net
