Relapse

Unless things quiet down significantly in the Middle East by some miracle, the world will experience a relapse of the oil crisis and this time, it could be worse than the crisis early this year. Mas matindi pag nabinat!

As the international consultancy firm McKinsey pointed out, the resilience in the oil market last March is over.

“Prices have increased, inventories are thinning, the strain on refining systems is rising, pipelines have been exposed to disruption and the shock has not been borne evenly across countries…”

Saudi Arabia has informed its European customers that their crude oil allocations for October 2026 have been cancelled because Saudi’s East-West Pipeline was severely damaged by a Houthi attack and Hormuz is still blocked.

Even if the Saudi pipeline can be restored to full functionality by late November, the geopolitical risk premium will keep energy markets highly inflated for the remainder of the year.

The shutdown of Saudi Arabia’s East-West pipeline hits Asian refiners the hardest, threatening up to 4.5 million barrels per day of Asia-bound crude.

Roughly 80 percent of Middle Eastern oil exports are destined for Asia. The closure of the East-West pipeline forces a massive logistical scramble, increasing freight costs and regional inflation.

Last May and June, China played the largest role in absorbing the shock, drawing from inventories and reducing oil consumption. As a result, its imports of seaborne crude oil and refined products fell over 40 percent from pre-conflict volumes. This freed up cargoes for other importers in Asia.

However, analysts note that China is now trying to rebuild its own domestic reserves rather than draining them to lower prices for neighboring nations yet again.

South Korea, where we get a good part of our refined products, is most vulnerable to the effects of this relapse. It sources 34.1 percent of its total crude imports from Saudi Arabia, making it the most exposed major economy to physical delivery delays and immediate spot market price increases.

Singapore’s commercial inventories can sustain baseline refinery operations for several weeks while replacement logistics are sorted out. Singapore’s major refineries will not run completely dry, but they are undertaking operational cutbacks.

Singapore’s large refineries are a major supplier of processed petroleum products to the Philippines, along with South Korea and China. Our country’s high dependence on imported finished products makes us extremely exposed to this relapse.

The threat to our ability to buy supply is regional.

Major suppliers like China have ordered state refiners to halt fuel exports to secure domestic supplies, and South Korea (our largest finished-fuel source at 34 percent) is facing similar crude delivery limits.

The Philippines will not experience sudden, dry fuel pumps next month, but the country will face severe price shocks and greater difficulty in buying supply by late November 2026. By then, the physical reduction of Singaporean refined exports will be strongly felt in the Philippines.

But Energy Secretary Sharon Garin assured us, our inventory should be good for the next 60 days or so.

If Saudi Arabia’s East-West pipeline restoration extends beyond its six-to-eight-week target, the Philippines will have to draw heavily on its domestic inventories while competing on the hyper-expensive spot market for replacement cargoes.

Our vulnerability comes from how our oil infrastructure is set up. We operate only one refinery, Petron’s facility in Bataan, which covers about 35 to 40 percent of national demand. The remaining 60 percent+ must be imported as finished products like diesel, gasoline and jet fuel.

To keep operations going when the Strait of Hormuz was initially closed, Petron made an emergency importation of Russian crude. That avenue is now closed because the specific temporary US sanctions waivers have expired.

Petron is obligated to comply with US Treasury rules. Otherwise, the company will be cut off from the global SWIFT banking network, halting its US-dollar trade transactions and effectively paralyzing its business.

Our government should have been actively trying to get new oil supplies through government-to-government deals from countries like Canada, the US and Mexico to break our deadly 98 percent dependence on Middle Eastern crude. But this alternative will entail higher logistical costs.

Canada’s new Trans Mountain Pipeline linking Alberta’s massive oil sands to Canada’s Pacific Coast (Vancouver) makes Canadian crude highly accessible to Asian buyers. Because Petron’s configuration thrives on heavy sour crude, Canadian oil is actually an excellent  match for the Bataan refinery.

The US and Mexico export oil from ports in the Gulf of Mexico, which would require passing through the Panama Canal or the longer Atlantic route around Africa’s Cape of Good Hope. A tanker from the US Gulf Coast takes three to four times longer to arrive in Limay, Bataan than a tanker from Saudi Arabia making the freight costs exponentially higher.

Our crisis for now is primarily an economic price shock rather than a physical supply collapse. Our gas stations will not run dry, not all of them. But global market forces are making fuel incredibly expensive to secure.

Massive pump price increases throughout the year have already pushed pump prices in Metro Manila well past the P100 mark. Common retail prices for gasoline RON95 sit around P91 to P107 per liter, diesel ranges between P94 and P111 per liter and kerosene has soared as high as P124 to P141 per liter.

We have to brace for the impact on our inflation as these levels of fuel prices particularly affect food and transportation. There is nothing our government can do except to assure supply because no or limited supply will be a lot worse.

*   *   *

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco