What do we do now?

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It doesn’t look like the world is going to get any relief soon from the crisis created by the US-Israel war with Iran. As I write this, the war has a good chance of escalating even as there is a glimmer of hope that all parties will agree to talk.

The focus is now on the Strait of Hormuz. Will the US send its marines to forcibly secure Hormuz and will they be successful?

Oil tanker traffic is virtually paralyzed at Hormuz. A deadlock exists where shipping lines wait for military protection, while the military waits for a political or tactical breakthrough before risking its fleet.

The US Navy is not too keen on implementing the escort service that Trump is offering. They do not have the resources to do it and they are aware of the high possibility of heavy casualties should they try. Trump is calling on US allies for help but has received a tepid response.

Military experts worry that just one mine or missile hitting an escorted tanker would result in an insurance catastrophe and a strategic “humiliation” that the US Navy is unwilling to absorb.

Worse, Iran has suggested it will ask its Houthi allies to also choke the Bab el-Mandeb strait. That will end the ability of Saudi Arabia to use its Red Sea port of Yanbu for its oil exports.

For us and the rest of the world, we want an end to this armed conflict so the oil trade can go back to normal. This makes opening Hormuz a top priority. Even paying the toll that Iran is imposing on oil tankers is better than the current virtual closure.

It is safe to assume that the price impact of the war will be felt by the world even if by some chance the US and Iran agree to end the war today. Given the damage to oil and gas production and export facilities, we should be ready to absorb high petroleum product prices for the rest of the year and beyond.

What do we do?

The government and the oil companies will have to continually scrounge for supplies from wherever we can at whatever price. Expensive oil is better than no oil as far as our economy is concerned.

During a Senate hearing, oil industry players said it is no secret that it is very hard to secure supplies now. Their spokesman said, “many traders are keeping quiet, especially for deliveries in May. There have been no responses for tenders in May.”

Chevron Phl general manager Pongtorn Tangmanuswong told the Senate that the impact of the tight fuel supply will be felt by importing countries by the end of April and May.

Energy Secretary Sharon Garin told the Senate that the product with the most critical level of inventory is LPG at 23.51 days. Gasoline is at 53.14 days and diesel is at 45.82 days.

In terms of mitigating the price increases for the consumers, the suspension of the excise tax is too small to make a difference for PU drivers.

Suspending the VAT should be considered instead because doing so is more efficient and provides faster relief to consumers compared to suspending excise taxes. This is because VAT is applied on top of both the fuel cost and the excise tax (it is a tax on top of a tax or a “tax on tax”).

When fuel prices rise, the VAT amount also increases because it is a percentage tax (12 percent of a higher price), making its removal more impactful during times of high fuel prices. It provides a more immediate pump price reduction.

The excise tax is a fixed P10 per liter for gasoline and P6 per liter for diesel. Its removal doesn’t give relief given the P66 per liter rise in diesel price and P40 per liter for gasoline.

Removing VAT at the point of importation immediately lowers the total cost, with the reduction likely passed on to consumers quickly.

Semafor, an energy news service, reports that gasoline prices fell 19 percent in Vietnam after the government removed taxes to help tame soaring energy prices. Customs duties were brought to zero. But the price of a liter remains 21 percent above pre-war levels.

Vietnam also has a Fuel Price Stabilization Fund (similar to the Oil Price Stabilization Fund we used to have) from which it had begun to draw to help lower pump prices.

Targeted assistance is theoretically a better way of helping the PU drivers but the amount the government is giving now is too meager for them to continue driving their units.

Understandably, the government’s fiscal constraints, aggravated by the P1-trillion corruption scandal, is a factor. Public officials, especially members of Congress, should control their greed to free more resources for the emergency.

The other problem is the inability of the government to properly distribute the assistance. There are complaints that some drivers were not included in the list of beneficiaries while some non-drivers are. Same old story of leakage, corruption and incompetence.

That’s why it is better to cut the taxes and give relief at the pump.

It is also time for the government to draft an allocation plan to prioritize basic services like public transport, health care facilities and water/sanitation systems.

Telecommunications and IT must also be prioritized. We need the infrastructure that powers the internet and communication networks, which are vital for emergency coordination and work-from-home.

We must also ensure banks and clearing houses have sufficient power to handle transactions, as digital payment systems often fail during power outages.

Emergency measures must also ensure energy for security forces, disaster response and food distribution while restricting non-essential consumption to stretch beyond June whatever fuel stock we have now.

Limiting fuel purchases at gasoline stations may have to be started.

We are amid a worsening crisis. Our government and our leading conglomerates must work together to alleviate its negative impact on the public.

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