[Vantage Point] Oil arithmetic and Iran’s prized revenue stream

The two-week ceasefire in the Middle East has provided what markets always want when tension is running high: the illusion of relief. But just as quickly, that tranquility fractured, with alleged violations erupting, terms being disputed, and military activity continuing at the same time.

As I have long suspected, the two-week ceasefire, as fragile as it is, is unsustainable. US Vice President JD Vance on Sunday, April 12, along with his negotiating team, left Pakistan without reaching a deal with Iran after 21 hours of negotiations fell through.

It’s unclear whether there would ever be a pause in the conflict. What I see now is a preview of something more prolonged: a protracted war in which ceasefires are fluid, conditional, and ultimately unreliable. The optics is not something the market is giddy about. The baseline has been altered.

Oil is no longer responding to discrete events; it is pricing in a state of permanent uncertainty. Nowhere is that uncertainty more concentrated than in the Strait of Hormuz, the narrow artery through which roughly a fifth of global oil supply flows. It is open, but not free. It is passable, but not neutral. And that distinction is now built into the cost of energy itself.

For the Philippines, the implications are both immediate and structural. Almost all of the country’s crude and refined fuel products are imported, with the lion’s share of the supply coming from the Middle East.

Much of that oil must flow through the Strait either directly or by way of Asian refining hubs. Every disruption — whether in the form of closure, restriction or conditional reopening — directly feeds into domestic fuel prices, inflation, and the balance of payments.

Even before the crisis, the country’s oil import bill hovered in the range of $14 to $16 billion annually. What has changed is not just the price of oil but the cost of moving it. The Strait is no longer merely a chokepoint, but has become a priced corridor.

The Department of Foreign Affairs has highlighted successful negotiations with Iran to secure transit for Philippine-flagged vessels through the Strait of Hormuz. It did not mention that, for its oil imports, the country must rely on chartered, foreign-operated Very Large Crude Carriers (VLCCs) and Suezmax tankers, rather than a domestic fleet.

Using these huge shipping vessels makes for another layer of hidden expense.

A single cargo could now carry tens to hundreds of millions of pesos in additional transit-related costs, based on insurance, delays, and fees. Multiply that across annual import volumes and you get the macroeconomic effect: higher pump prices, wider trade deficits, and sustained inflation pressure.

During extreme disruption, supertanker rates have surged to levels exceeding $400,000 per day, embedding millions of dollars in extra cost in every trip. When cargo is refined, distributed and sold, this added burden is measured — not in dollars per barrel, but in pesos per liter. This, to me, is not incidental: It is a reflection of a shift in control.

The IRGC factor

The cornerstone of that shift is Iran’s Islamic Revolutionary Guard Corps (IRGC), a military force and an economic actor at the same time.

Over the years, the IRGC has expanded its footprint into various crucial sectors of the Islamic country’s economy, in areas such as energy, logistics, and infrastructure. Its chokehold of the Strait of Hormuz has transformed from strategic to economic. Control of the strategic maritime strait offers something that’s quite rare in global markets: the high-leverage ability to influence, regulate, and dictate the flow of an essential resource.

This capability provides unprecedented market control over a vital commodity necessary for global economic function.

The assumption that Iran is merely relinquishing control during a temporary truce is fundamentally misguided. The incentives are deeper than diplomacy. The Strait extends beyond a tool of security: it is a revenue stream, a negotiating tool, and a lever of influence over the world’s energy markets. In an atmosphere of protracted armed conflict, that leverage is more — not less — useful.

Since the IRGC derives its power partly from economic dominance, its control over the Strait of Hormuz is not a chip for bargaining, but a strategic asset to be defended.

Layered on top of this is the monetary architecture that governs oil itself.

Oil has been priced mostly in US dollars since the 1970s, the petrodollar system. In this arrangement, nations that require oil must also possess dollars, further tightening worldwide demand for the global currency.

Energy security

For oil-importing nations, such as the Philippines, energy security is now linked to financial capability, specifically access to foreign currency, rather than just physical supply chains. When global crude prices surge, the corresponding increase in dollar demand strains local liquidity and places significant pressure on the emerging market’s currency.

This illustrates the quiet power of the petrodollar. Because oil is priced in dollars, monetary conditions in the US dictate energy markets. Consequently, rising oil prices increase global demand for dollars, tightening liquidity for importing economies.

For the Philippines, it leads to a damaging economic loop: higher oil prices increase dollar demand, leading to pressure on the peso, and eventually making fuel domestically more costly. This dynamic ensures that inflation is not just imported, but magnified locally through higher transport and production expenses which drive up local prices.

By absorbing the shock in importing economies, the gains then go elsewhere with more certainty. Oil producers expand margins as prices increase more quickly than costs. Exporting countries collect higher royalties and taxes, enhancing fiscal balances without expanding output. Energy companies experience stronger earnings, with investors cycling in money to the sector as some hedge against instability. Even traders and refiners find value in volatility, drawing value from price movements rather than price levels.

Government response

In this context, the Philippine government’s policy response focuses on providing financial relief through tax reductions and subsidies to mitigate high fuel costs. Fuel receives an excise tax of around P10 per liter for gasoline and P6 for diesel, plus a 12% value-added tax (VAT). Eliminating these could reduce pump prices by as much as P15-P20 per liter.

The cost to the fiscal economy, however, is great. Fuel excise taxes create about P250-P300 billion a year, and rolling back or suspending them — even temporarily — can widen the deficit by over 1% of gross domestic product (GDP), transferring relief today to the deficit of tomorrow.

Subsidies provide a more focused alternative, particularly for transportation operators and low-income families. But if wielded indiscriminately, they risk promoting overconsumption and embedding fiscal pressure. While politically appealing, windfall taxes carry their own danger of skewing long-term investment incentives, if imposed without precision. Each redistributes the burden differently — but none takes it away.

This is the essential illusion of moments of geopolitical calm. A ceasefire may temporarily relieve prices, but it doesn’t change the system producing the shock. The Philippines remains exposed — through import dependence, currency vulnerability, and fiscal constraints — to forces largely beyond its control.

It is impossible to eliminate an oil shock. It can only be redistributed, more or less intelligently. The temporary calm may soften the edges, but it does not change the equation. When the next disruption arrives — as it inevitably will — the question will not be whether prices rise again, but how the cost is shared, and whether that sharing reflects foresight or simply necessity.

I welcome your views on these and other issues where decisions made in power shape the country’s economic future. – Rappler.com

This analysis integrates data from the Philippine Statistics Authority (PSA) on trade and energy imports; Department of Energy (DOE) pricing structures; Department of Finance (DOF) and Bureau of the Treasury (BTr) data on collections of fuel excise and VAT under the TRAIN law; Bangko Sentral ng Pilipinas (BSP) exchange rate trends; and international energy market reports from the International Energy Agency (IEA), the US Energy Information Administration (EIA), and major financial news services. The historical context of the petrodollar system stems from existing economic studies, and US-Saudi monetary agreements after Bretton Woods. Any provided numerical estimates are analytical projections based on public data and current market trends, intended for illustrative purposes rather than forecasting.

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