The decision last week by petroleum exporters to cut production threatens the global economy. In the Philippines, the ripple effect will be felt as early as this week, when pump prices sharply increase. That in turn will further fuel inflation, with transportation costs accounting for a large component of the rise in prices.
Despite pressure from the United States, OPEC+ announced that it would slash production by 2 million barrels per day beginning November. OPEC is the 13-member Organization of Petroleum Exporting Countries, and the plus refers to 10 allies led by Russia.
Washington accused OPEC+ of aligning with Russia, which was hit with economic sanctions after the invasion of Ukraine. Economic sanctions restrict the flow of oil from Russia, the world’s third-largest petroleum producer. The sanctions were meant to weaken Russia’s war effort, which is financed by earnings from its energy exports.
OPEC+ denied that it was siding with any country, but it is undeniable how its move benefits Russia. It is also evident how the cut harms global economies. In the United States, high inflation will likely affect the midterm elections in November. And to tame inflation there, the US Fed raised interest rates, resulting in the appreciation of the dollar against other foreign currencies, including the Philippine peso.
As mentioned earlier, higher fuel prices will also drive up inflation here, making it the biggest concern among Filipinos, according to Pulse Asia. And like in the US, local interest rates have been increasing as a response.
That will not be easy, with prices increasing. But in isolating the problem to fuel, policy interventions need to be more focused.
Not helpless
Even though the economic problems are caused by external factors, the Philippines can try some countermeasures. As suggested before in a previous editorial, the authorities could order increasing the share of biofuels in the fuel mix. In Latin America, the share of biofuels is double what is required here.
Generally, the challenge is to make the Philippines less dependent on petroleum. A commentary in the Washington Post pointed out that the 1973 oil embargo backfired because it shocked the US and other industrialized countries into using energy more efficiently.
The Philippines could do that by encouraging more Filipinos to switch to hybrid vehicles in the short run through tax incentives. In the long run, the country needs to build infrastructure that encourages people to switch to electric vehicles, and not just cars but also railways and perhaps even ships.
Fortunately, the Marcos government seems committed to developing green technology and carbon-free energy sources, like nuclear power. That should continue. But as some have pointed out, those alternatives are neither carbon-free nor entirely clean.
Meanwhile, policymakers should resist cutting the excise tax on fuels. The windfall income can fund the public spending needed to recover from the pandemic. The government’s targeted response to give subsidies to the transport sector is a better alternative and should continue.
On the foreign policy front, the government is reportedly looking to buy oil from Russia. That may seem consistent with being a friend to all, but doing so seems like rewarding the country that caused many of today’s global economic problems. Besides, the government will need to learn how that could be done without violating the international economic sanctions imposed on Russia.
Meanwhile, the US is looking to use more of its strategic oil reserves to increase supply. But those reserves are already at an all-time low, and there may be pressure for the US to limit its oil exports to protect American consumers. The Philippines should be ready to deal with that, just in case.
The bottom line should be to find ways to consume less — not just oil but everything else.
SOURCE: ManilaTimes