Why Cheap Oil Hurts Its Net Importer, the Philippines

♠ Posted by Emmanuel in ,, at 2/01/2016 05:39:00 PM

There's an interesting story in Bloomberg about how a largely oil-importing nation, the Philippines, can be negatively affected overall by lower oil prices. Sure, the country benefits from lower oil prices to an extent. However, in the larger scheme of things, matters appear less rosy. As a large labor exporter, the Philippines has, since the first oil shock, sent large numbers of migrant workers to the Middle East. With the country dependent on workers' remittances from abroad to improve its external position--the Philippines runs a sizable trade deficit annually but nevertheless manages a current account surplus due to the aforementioned remittances--current trends are worrying:
The share of remittances coming from the Middle East could be as high as 40 percent, compared with 23 percent in the official [Philippine] data, according to a Jan. 27 research note by Michael Wan, a Credit Suisse Group AG analyst in Singapore. Remittance growth slowed to 3.6 percent in dollar terms last year through November, from 5.8 percent in 2014, central bank data show. Volumes have held up reasonably well so far, said Wan.

That could change as the impact of a 29 percent drop in Brent crude over the past six months forces Saudi Arabia to cut generous subsidies to its citizens, while the United Arab Emirates’ Etihad Rail suspended a major rail project this week after firing almost a third of its workforce. Brent recovered to around $35 on Monday after falling to a 12-year low of $27.10 a barrel on Jan. 20.

“Before, when the trouble would be concentrated in one of the countries in the Middle East and North Africa, the workers could just simply move to a neighboring country and find employment,” central bank Governor Amando Tetangco said Jan. 25. “Now the trouble is more widespread.”
Aside from affecting land-based workers in the Middle East, another possible avenue for low oil prices negatively impacting the Philippines is via reduced crew aboard oil services-related ships.  Somewhere between a fifth to a fourth of all seafarers worldwide are Filipino, so it follows:
As well as declining oil prices, a more general slowdown in global trade is affecting the job prospects of Filipino seamen. Many drillers and oil-service companies have suspended operations and shipping companies are also hurting, said Nelson Ramirez, the president of United Filipino Seafarers. “I have talked to one of the biggest crew suppliers of offshore vessels,” he said in Manila. “They have many laid-up ships. There will be more job losses.”