Fuel prices at a gas station in Davao City show a significant jump on Tuesday, March 17. Local motorists are feeling the pinch as oil companies implement a "big-time" price hike across the board. (Photo by Keith Bacongco I MB)

The Philippine economy is seen to be badly hit by a volatile cocktail of soaring energy costs, double-digit remittance declines, and a multibillion-peso hole in the national budget as the escalating Middle East conflict threatens to derail domestic growth.

Separate assessments from the Department of Economy, Planning, and Development (DEPDev), the Department of Finance (DOF), and the Bureau of Customs (BOC)—obtained by Manila Bulletin on Tuesday, March 17—reveal a country bracing for a worst-case scenario where Dubai crude oil could spike to $140 per barrel, a move that would fundamentally alter the nation’s fiscal and inflationary landscape.

According to DEPDev Undersecretary Rosemarie G. Edillon, the crisis arrived just as oil prices were already accelerating; Dubai crude averaged roughly $68 per barrel at the start of 2026 before United States (US)-Iran-Israel tensions escalated.

Under a severe “Scenario 2,” where the conflict widens, the government projects that domestic diesel prices could surge by as much as 62 percent and gasoline by 52 percent.

This energy shock is expected to drive headline inflation to between 6.3 percent and 7.5 percent in March and April 2026, a sharp departure from the government’s pre-war baseline forecast of 3.6 percent. Full-year 2026 inflation is estimated to average above four percent—reaching as much as 4.5 percent to 4.8 percent under Scenario 2.

The economic fallout extends far beyond the gas pump, threatening the bedrock of Philippine consumption: overseas remittances. DEPDev warns that a total deployment ban and the repatriation of over 556,000 overseas Filipino workers (OFWs) from conflict-affected and adjacent regions—including Egypt, Lebanon, Palestine, Syria, and Yemen—could trigger a ₱231.8-billion reduction in remittances.

This represents a staggering 62.7-percent drop from the record-high 2025 levels.

When combined with the erosion of local purchasing power due to inflation, these factors are projected to shave between 0.2 percentage point (ppt) and 0.3 ppt off the nation’s real gross domestic product (GDP) growth for the year. The government targets GDP growth of five to six percent for 2026.

To shield consumers, the Marcos Jr. administration is weighing a total suspension of fuel excise taxes, though the DOF highlights a massive fiscal cost.

A full suspension for all oil commodities from May to December 2026 would result in a total revenue loss of ₱135.9 billion. This figure includes ₱121.4 billion in foregone excise taxes and ₱14.6 billion in lost 12-percent value-added tax (VAT) that would have been collected on those excise taxes.

Sensitivity analysis from the DOF, according to Finance Undersecretary Karlo Fermin S. Adriano, further reveals the precision of this risk: for every ₱1 reduction in the excise tax rate, the government stands to lose approximately ₱9 billion to ₱10 billion from diesel and ₱5 billion to ₱6 billion from gasoline over an eight-month period.

The government hopes to find a partial buffer in incremental VAT collections triggered by higher retail oil prices. The DOF estimates that if crude remains at $100 per barrel, the additional VAT collection could reach ₱37 billion, providing a modest offset to the excise losses.

However, the BOC notes that the pressure is already manifesting in real time. Monitoring of the Mean of Platts Singapore (MOPS) for the period of Feb. 23 to March 3, 2026, shows that while prices for automotive diesel, jet fuel, and unleaded gasoline were stable in late February, they began a sharp upward climb in early March as the conflict intensified.

In response to this multifront crisis, DEPDev has recommended that the President be granted authority to temporarily reduce or suspend fuel taxes based on specific price triggers.

Beyond fiscal measures, DEPDev is advocating for a shift in national operations, including the promotion of flexible work arrangements to conserve energy, easing transport costs for food producers to prevent secondary price hikes, and accelerating the deployment of e-vehicles and bioethanol to reduce the Philippines’ long-term vulnerability to the volatile Middle East energy market.