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In April 2026, Fitch Ratings revised the Philippines’ outlook from stable to negative, citing the economic strain caused by rising global energy prices linked to renewed geopolitical tensions in the Middle East. The downgrade underscored a recurring vulnerability: economies that rely heavily on imported fuel remain exposed to external shocks that can quickly ripple through domestic markets.
According to Fitch, higher oil prices contributed to inflationary pressures, weakened consumer purchasing power, and increased fiscal strain. These effects, in turn, dampened growth projections.
The Philippines, like many developing nations, operates within a tightly interconnected global energy system. When supply disruptions occur, whether due to conflict, production cuts, or logistical bottlenecks, the economic consequences are immediate. Energy security, therefore, is not merely a sectoral concern but a foundational component of economic resilience.
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Energy’s Role in Growth and Inflation
The World Bank has consistently emphasized the link between energy access and economic development, noting that “Energy is the lifeline of a modern economy and a foundation for development.” It adds that increasing access to stable and cost-effective energy “can raise living standards, safeguard essential services, create jobs, drive digitalization, and propel growth.”
Similarly, the International Energy Agency (IEA) highlights that the Middle East conflict has triggered a major energy crisis, causing what could be the largest oil supply disruption on record. “In the absence of a swift resolution, the impacts on energy markets and economies are set to become more and more severe,” it warned.
Inflation in the Philippines surged sharply in April, accelerating to 7.2% as rising food and fuel prices put renewed pressure on household budgets, according to the Philippine Statistics Authority (PSA). The spike marked a significant jump from March’s 4.1% and exceeded the Bangko Sentral ng Pilipinas (BSP) forecast range of 5.6 to 6.4%. It also moved well beyond the government’s 2 to 4% target, signalling a troubling resurgence of price pressures. The last time inflation approached this level was in March 2023, when it reached 7.6%.
PSA Undersecretary and National Statistician Claire Dennis Mapa attributed the surge primarily to escalating rice and fuel costs—two essential expenses that ripple across the broader economy. As these staples become more expensive, the effects cascade through transportation, production, and daily consumption, intensifying the cost burden on Filipino households.
The country’s Southeast Asian neighbors are also grappling with the crisis. Thailand’s central bank cited the need to evaluate the effects of rising oil prices linked to the Middle East conflict while continuing to support an economy weighed down by weak consumption and elevated household debt.
Meanwhile, Indonesia is under pressure with higher crude prices and tightened financial conditions. and a weakening rupiah. Even before the shock, Moody’s and Fitch had maintained a negative outlook on Indonesia’s sovereign rating due to existing vulnerabilities. The government has delayed fuel price increases to manage inflation and social stability, but fiscal pressure is rising as energy subsidies, estimated at 0.8% of GDP in 2026, continue to grow with additional compensation costs to state energy firms.
Can Renewables Save Economies?
In March, the Philippine government mentioned prioritizing renewable energy and the conservation of critical fuel reserves, following the suspension of trading on the Wholesale Electricity Spot Market (WESM) amid fuel supply risks and price volatility linked to the war.
Globally, renewable energy advocates argue that expanding domestically produced electricity from sources such as wind and solar can play a crucial role in strengthening energy security. Because these energy sources are generated locally, they reduce dependence on imported fossil fuels and help shield economies from the price volatility and supply disruptions.
While expanding renewable energy remains a valuable long-term goal, its immediate implementation and ability to deliver near-term relief may not be realistic for many economies, including the Philippines. This is largely due to high upfront costs and the continued need for a reliable, stable power supply. Because wind and solar are inherently intermittent, they also require significant investment in energy storage systems and grid modernization to ensure they can consistently support broader economic demand.
“Many Asian leaders have long disdained renewables as unreliable, expensive, and unsuitable for lower-income or middle-income states,” wrote Joshua Kurlantzick for the think tank, Council on Foreign Relations. “Avenues that were immediately available to Europe as it responded to the Ukraine War and the loss of Russian oil—rapid LNG diversification, aggressive demand reductions, and intensive storage policies—are simply not available to many of the states across Asia.”
Additionally, Copenhagen Consensus President Bjørn Lomborg highlighted that renewable energy advocates often overlook the continued importance of fossil fuels in supporting food security, a pressing concern for many emerging economies.
He further emphasized that “without fossil fuels, half the global population would suffer a severe lack of food.” His argument stressed the broad dependence of modern food systems on fossil energy, which extends beyond agriculture itself to include fertilizer production, mechanized farming operations, irrigation infrastructure, as well as transportation and cold-chain logistics that enable food to move efficiently from production areas to consumers.
Another issue for the green energy transition is its heavy reliance on critical raw materials such as lithium, cobalt, nickel, and rare earth elements. As countries accelerate the rollout of clean energy systems, demand for these minerals has risen sharply. In 2024 alone, global lithium demand jumped by nearly 30%, while demand for nickel, cobalt, graphite, and rare earths increased by around 6 to 8%. At the same time, these metals are subject to pronounced price volatility due to concentrated supply chains, limited substitutes, and relatively inelastic demand.
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Fossil Fuels Remain a Lifeline for Vulnerable Economies
Currently, Southeast Asia is turning to Russia to fill fuel and fertilizer gaps emerging from the Iran war. Indonesia recently announced plans to import up to 150 million barrels of Russian crude. Thailand is reportedly in talks with Russia to secure fertilizer supplies while increasing production at its largest coal-fired power plant.
The Philippines also received its first shipment of Russian crude oil in five years in March. It has also turned to coal-fired power in the short term, backed by expectations of steady coal imports from Indonesia. With the Japan Korea Marker (JKM) increasing by about 82%, the Department of Energy (DOE) has cautioned that electricity rates could rise by as much as 16% without mitigating measures.
Meanwhile, Bangladesh has raised coal-fired generation and expanded imports to ease supply shortages, while Vietnam has moved to secure additional coal supplies. South Korea has relaxed limits on coal plant operations even as it continues expanding nuclear capacity, and Japan has maintained elevated coal use to support a reliable baseload electricity supply.
In response to environmental concerns over coal dependence and emissions, the DOE had previously argued that the Philippines cannot be directly compared with larger economies, “which have different energy strategies and infrastructures adapted to their specific demographic and economic conditions.”
With the Philippines accounting for roughly 0.5% of global carbon emissions, Manila Times columnist Ben Kritz pointed out that Filipinos are still focused on ensuring reliable access to basic electricity, while more affluent countries are already grappling with the decarbonization of sectors such as aviation and data infrastructure.
He wrote, “Energy is the linchpin of development here, as it is in most places, thus in order to make the biggest dent in poverty reduction and overall economic standards, the Philippines must focus on building its energy security — that daunting balance of accessibility, reliability, affordability and sustainability.”
Given the economic pressure from ongoing oil price volatility, it is understandable that the Philippines is relying on existing energy sources and infrastructure to secure immediate supply stability. At the same time, the country continues to pursue renewable energy expansion, but it also needs room to implement practical, near-term measures that protect consumers and maintain affordability. Without such interventions, households could face further economic strain, potentially deepening poverty while longer-term clean energy solutions are still being scaled up.
Sources:
https://www.worldbank.org/ext/en/topic/energy
https://www.philstar.com/business/2026/05/01/2524781/april-inflation-may-hit-3-year-high
https://eastasiaforum.org/2026/04/16/the-iran-war-widens-indonesias-fiscal-faultlines
https://www.cfr.org/articles/the-iran-war-is-reshaping-asias-energy-security-strategies
https://nypost.com/2026/04/13/opinion/how-the-strait-of-hormuz-saves-the-world-from-starvation
https://arxiv.org/abs/2501.16069
https://www.gmanetwork.com/news/money/economy/981180/indonesia-ph-coal-supply/story
https://www.abs-cbn.com/news/business/2026/5/5/inflation-quickens-to-7-2-percent-in-april-0906