It is no news to anyone that gas prices, groceries, and all-around cost of living, have been rising steadily for most Filipinos. This aims to provide a better understanding of the situation, what brought us here, and where we can go from here as a nation.

The Oil Crisis: Origins and Context

The 2026 oil crisis began as a supply disruption that came from the ongoing conflict involving Iran, the United States, and Israel. When a key shipping corridor, the Strait of Hormuz, became unsafe, the global market lost access to a large volume of exportable oil in a matter of days. With limited spare capacity, prices surged, and the effects spread quickly to fuel-dependent sectors.

The Strait of Hormuz transports roughly a fifth of globally traded oil and gas. Any prolonged interruption can instantly strain supply. The result: the oil prices soared

For the Philippines, an economy that relies on imports for nearly all of its fuel requirements, the consequences are not only immediate but potentially long-lasting. The Land Transportation Office (“LTO”) reported that gasoline powered vehicles comprised 78.7 percent of the country’s total in 2023, while diesel vehicles made up 21.3 percent. This shows that both diesel and gasoline are widely used for transportation. The higher fuel prices therefore ripple through transportation, food, and consumer costs.

Considering these events, President Ferdinand R. Marcos signed on March 24, 2026, Executive Order (“EO”) No. 110 declaring a state of national energy emergency, highlighting the disruptions in the global oil supply.

Looking Ahead

Global market indicators suggest that oil prices may remain elevated in the short to medium term, with periodic spikes driven by supply disruptions in the Middle East. Historically, market behavior during three major conflicts involving oil- producing nations —The Gulf War (1990), the Iraq War (2003) and the ongoing Russia-Ukraine War (2022)—show that oil price hike shocks of this magnitude do not normalize quickly; rather, they induce a prolonged adjustment period marked by economic uncertainty.

From a macroeconomic perspective, the Philippines faces a dual challenge of rising inflation and slowing economic growth. Elevated fuel import costs are exerting pressure on the peso, while the resulting tighter monetary policy responses may constrain borrowing and investment activity.

The Bangko Sentral ng Pilipinas (“BSP”) projects inflation to average 5.1 percent in 2026. Deputy Governor Zeno Abenoja emphasizes that the outlook also incorporates potential increases in transport fares, electricity rates, tariffs, and fertilizer prices. These upward pressures, however, may be partly mitigated by the possible suspension of the fuel excise tax.

BusinessWorld reports further warn that sustained increases in oil prices could dampen Gross Domestic Product (“GDP”) growth projections and weigh heavily on energy-intensive sectors. At the same time, global outlooks point to continued oil price volatility amid unresolved geopolitical tensions, leaving markets in a prolonged state of uncertainty.

Transportation and logistics experience the most immediate pressure, followed closely by agriculture, where rising fuel costs alongside higher fertilizer prices directly affect both production and the distribution. Manufacturing industries are similarly affected, as escalating input costs place additional pressure on operations and profitability.

Overall, the U.S.–Iran conflict underscores the Philippines’ structural vulnerability to external energy shocks. While short-term relief measures may soften the immediate impact, the long-term outlook remains one of sustained volatility. Without meaningful diversification of energy sources and strengthened fiscal resilience, the economy will continue to face recurring exposure to global oil disruptions with far-reaching macroeconomic consequences.

Current Government Response

Recognizing the scale of the impact, the government has treated the situation as an urgent energy and economic issue requiring swift intervention, while maintaining fiscal stability.

Government action has taken shape along two main tracks. Congress took legislative action by pursuing tax-based interventions to moderate fuel prices, while the executive branch utilized statutory authority and existing administrative powers to deliver faster relief and secure oil supply.

Legislative Actions

Legislative attention focused on the excise of taxes imposed on petroleum products under Section 148 of the National Internal Revenue Code, as amended. This led to the enactment of Republic Act No. 12316 (“RA 12316”), which took effect on March 25, 2026. The law authorizes the President, upon recommendation of the Development Budget Coordination Committee (“DBCC”) and in coordination with the Secretary of Energy, to suspend or reduce excise taxes on fuel when the one-month average Dubai crude oil price, based on the Mean of Platts Singapore (“MOPS”), reaches at least US$80 per barrel. The authority may apply to specific petroleum products and may take the form of either a full suspension or a partial reduction.

Alongside this enacted measure, Congress continues to deliberate on broader proposed reforms. This includes several House bills seeking the temporary suspension, zero-rating, or permanent repeal of excise taxes on gasoline, diesel, LPG, kerosene, and aviation fuel. Senate proposals range from permanent abolition of excise taxes on selected fuels to automatic suspension mechanisms linked to international pricing benchmarks such as the MOPS.

These proposals aim to provide immediate relief in retail fuel prices. However, economic managers have raised concerns over potential revenue losses and distributional effects. The Department of Finance (“DOF”) has cautioned that blanket excise tax suspensions may disproportionately benefit higher-income fuel consumers, particularly in the case of diesel and gasoline, while reducing funds available for more targeted assistance.

Executive Measures

While Congress deliberated, the executive branch acted using existing powers. In March 2026, the Department of Budget and Management approved the release of ₱20 billion from the Malampaya Gas Fund to finance the DOE’s Emergency Energy Security Program. The funds are intended to support strategic fuel procurement, expand national inventory, and prevent supply disruptions, with implementation led by the Philippine National Oil Company – Exploration Corporation.

These fiscal and operational measures operate within the framework of the Unified Package for Livelihoods, Industry, Food, and Transport (“UPLIFT”) Committee, created under EO No. 110 and chaired by the President. The Committee aligns interventions across fuel assistance, food security, and transport support to stabilize prices and protect vulnerable sectors.

In compliance with RA 12316, EO No. 114 suspended the excise tax on LPG (except when used as raw material to produce petrochemical products or for motive power) and kerosene (except when used as aviation fuel) for three months. DBCC explained that the coverage did not include diesel and gasoline explaining that suspending excise taxes on both would not provide “meaningful relief”. Rather, DBCC rationalized that “by fully suspending excise taxes on kerosene and LPG, the government is directly helping every Filipino family and small businesses such as carinderias, meet every day cooking and basic energy needs through savings of around P36.96 per 11-kg cylinder for LPG and P5.56 per liter of kerosene”

In addition, the Department of Social Welfare and Development (“DSWD”) implemented targeted cash relief assistance of ₱5,000 for transport workers. This included qualified beneficiaries such as tricycle drivers, jeepney operators, TNVS drivers, motorcycle taxi riders, and delivery workers.

Meanwhile, the Department of Energy (“DOE”) continues to coordinate with oil companies to secure alternative supply sources and monitor national inventory levels, while also expediting the implementation of 22 renewable energy projects with a combined capacity of 1,471 megawatts to support electricity supply stability.

Gaps and Policy Challenges

Despite these measures, structural constraints remain. Legislative tools are subject to trigger conditions, statutory limits, and political debate, while executive actions depend on finite funds and existing authority. Targeted subsidies, though more equitable than blanket tax cuts, may be insufficient if elevated global oil prices persist for an extended period.

Concerns over transparency and effectiveness have also emerged. Lawmakers have called for clearer accounting of emergency fund spending, including more detailed reporting on how funds are allocated, and which sectors ultimately benefit from relief measures. Beyond these immediate issues, the crisis has revived long-standing policy questions on how to balance short-term economic relief with fiscal discipline and the broader objective of reducing dependence on imported fossil fuels.

Taken together, the government’s response reflect a layered and restrained approach. While these measures provide short-term relief, they remain largely reactive and temporary. Their limitations underscore the need for more durable policies that strengthen energy resilience and reduce exposure to external shocks.

Proposed Response

Given the underlying challenges amid the oil crisis, solutions should strike a balance between energy resilience and immediate relief.

Building Energy Resilience

The closure of the Strait of Hormuz disrupted the global flow of oil products. These supply delays prompted several countries to draw on their Strategic Petroleum Reserves (“SPR”) to cushion domestic markets and mitigate the expected surge in oil prices. China, the United States, and Japan hold the most strategic oil inventories in 2025. Unlike these countries, the Philippines does not have SPR. Instead, the Philippines requires private oil companies to maintain minimum stocks and ensure supply.

To avoid sudden price spikes (particularly those arising from disruptions beyond the country’s control), the government could increase domestic storage capacity for petroleum product reserves. Given the capital-intensive nature of such investments, the Philippines may also explore joint or multinational strategic reserves with neighboring countries. Currently, only Vietnam has government stockpiling or strategic petroleum reserves in the ASEAN Region.

Another option is the continuous exploration of ticket stockpiling arrangements. This is where a seller agrees to hold or reserve an amount of oil for a fee, effectively granting access to oil reserves in times of emergency while the country is building its capital for the relevant infrastructure. Japan and New Zealand entered such an agreement in 2007. Meanwhile, other countries enter into joint stockpiling agreements with crude oil exporters such as Japan with the UAE.

Immediate Relief: VAT Suspension on Petroleum Products for Targeted Beneficiaries

According to the “DOF, revenue collections from excise tax and VAT on petroleum products from 2021 to 2025 were approximately ₱ 160 billion. Considering the potential impact on government revenue, the suspension of VAT and/or excise taxes on petroleum products may cause more adverse effects than benefits. It is for this reason that we propose a suspension or reduction of VAT limited to petroleum products bought by the government for their targeted beneficiaries.

Rather than distributing financial assistance, adopting a more targeted approach by suspending the related taxes only on fuel that it procures for distribution to identified beneficiaries (e.g., public transport operators, essential services, and other critical sectors) could potentially preserve revenue while increasing the purchasing power of the subsidy.

By doing so, the government avoids a broad-based revenue loss that would result from blanket suspension of VAT and excise tax, and targeted beneficiary programs can be implemented at lower cost because government procurement is net of VAT and/or subject to reduced excise tax, improving the purchasing power of the subsidy.

References:

1. Philippine Daily Inquirer. (2026, March 9). War, oil and markets: What history tells us. Inquirer Business. https://business.inquirer.net/578216/war-oil-and-markets-what-history-tells-us
2. ABS-CBN News. (2026, March 26). BSP projects average inflation to hit 5.1%. https://www.abs-cbn.com/news/business/2026/3/26/bsp-projects-average-inflation-to-hit-5-1-1821
3. The Manila Times. (2026, April 20). Investors seen staying cautious due to war risks. https://www.manilatimes.net/2026/04/20/business/top-business/investors-seen-staying-cautious-due-to-war-risks/2323463
4. BusinessWorld Online. (2026, April 22). ESCAP sees GDP growth at 5.2% barring prolonged ME conflict. https://www.bworldonline.com/top-stories/2026/04/22/744528/escap-sees-gdp-growth-at-5-2-barring-prolonged-me-conflict/
5. Manila Standard. (2026, April 20). ADB trims Philippine 2026 growth forecast to 4.4% on Middle East conflict risks. https://manilastandard.net/business/314725135/adb-trims-philippine-2026-growth-forecast-to-4-4-on-middle-east-conflict-risks.html
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7. Philippine Information Agency, “PBBM: More measures coming to protect Filipinos from oil crisis,” https://pia.gov.ph/news/pbbm-more-measures-coming-to-protect-filipinos-from-oil-crisis/
8. Darryl John Esguerra, “Gov’t ramps up aid, secures stable fuel supply amid Middle East conflict,” Philippine News Agency, https://www.pna.gov.ph/articles/1273372
9. Republic Act No. 12316 (2026), https://www.officialgazette.gov.ph/2026/03/25/republic-act-no-12316/
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12. Executive Order No. 110, s. 2026
13. Executive Order No. 114, s. 2026
14. Philippine News Agency, “PUV drivers to get ₱5,000 fuel subsidy starting next week,” https://www.pna.gov.ph/articles/1270818
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16. Department of Social Welfare and Development, “DSWD starts cash relief assistance special payout for Metro Manila tricycle drivers,” https://www.dswd.gov.ph/dswd-starts-cash-relief-assistance-special-payout-for-metro-manila-tricycle-drivers/
17. Priyanka Shankar, “Which countries have strategic oil reserves – and how much?” Al Jazeera, March 23, 2026, https://www.aljazeera.com/news/2026/3/23/which-countries-have-strategic-oil-reserves-and-how-much (accessed April 29, 2026).
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23. Bureau of Internal Revenue, “Tax Code: National Internal Revenue Code of 1997 (NIRC), as amended,” Title VI, Chapter V, sec. 148.