Last week, I devoted this column to oil and the law of supply and demand.
I will explore this topic further.
The rising cost of oil due to the war in the Middle East is disadvantageous to oil-importing countries such as the Philippines. Since the 1973 Arab oil embargo, this is the fourth international oil crisis.
What does this reality tell us? First, we have to take oil dependency in the world market as a given. In other words, the country needs to anticipate that this crisis will occur every 10 to 20 years.
Since this is a supply-demand situation, the country has to explore alternative sources of oil it can procure in times of crisis.
Exploring renewable energy sources needs to be pursued more actively and used more widely.
If the information is correct that all of our oil comes from the Middle East, then we are in deep trouble. Exports of oil from these countries are currently zero and could take many weeks, if not months, to return to normal. The war in the Middle East must be concluded before such imports resume. Where does that leave us?
This brings us to the second point. The high prices of oil products will result in higher prices for everything. Curbing inflation will be a major difficulty. The economic cost could exceed that of the COVID crisis.
We had effective strategies to reduce the spread and destruction caused by the COVID-19 crisis, but when it comes to imported oil, we have virtually nothing the country can do to immediately increase oil supply.
Thus, it is resorting to reducing demand, such as the four-day workweek for government employees.
The downside is that government offices can be less effective. Processing of documents will take longer. In the meantime, there is a strong clamor for increasing transport fares. Next comes the pressure to increase minimum wages. Action is needed in the coming days.
Another strategy is to reduce costs by lowering government taxes on oil products, such as the excise tax. But such a move will reduce the budget for government projects and slow the country's economic growth.
The government must study the specific impact of rising fuel costs on industry production processes. The cost of fuel, as a component of total costs, varies by industry.
There are many other aspects of this crisis that require attention, including the repatriation of workers. The return of our Overseas Filipino Workers to the Philippines will reduce the inflow of foreign exchange into the economy. If thousands of them come home, that would seriously reduce family income, which in turn would worsen the country's unemployment problem.
Overall, the challenge is to increase the economy's growth rate despite the current oil crisis.
Sometimes it is true that necessity is the mother of invention. The workers who return may be able to set up businesses that can help economic growth.
Resilience in the face of crisis situations is the name of the game.
#WeTakeAStand #OpinYon #OpinYonColumn