The Philippine dilemma

Whether it’s via DC’s IMF Spring Meetings or your paper’s international pages, there’s one region sounding the loudest energy alarm since the Iran conflict began — Southeast Asia. 

And while it’s all been a little lost in the US-Iran media shuffle, it’s worth taking a look at some veeeery intriguing developments in the Philippines, starting with…

1. Energy 

The Philippines imports ~98% of its crude, and nearly all from the Middle East.

So with the Iran war squeezing Hormuz, and Manila sitting on barely 45 days of reserves (half the IEA guide), it made sense for President Marcos Jr to declare an emergency as local fuel prices doubled amid ~$10 daily minimum wages.

He’s also now a) pushed for US waivers to buy Russian oil, b) allowed dirtier fuels, and c) implemented a four-day work week for government employees… which government employees will insist just means longer hours across four days, not a free day off. Right?

But what really caught our attention was his hint about potentially reopening fraught talks with China on joint oil exploration in the South China Sea, which takes us to…

2. Trade

The Philippines sits right on the South China Sea, which hosts a ~quarter of global maritime trade, 40% of global seaborne crude, and ~80% of China’s crude imports.

So this is some serious real estate, which might explain why China still lays claim to 90% of the Sea via its infamous ‘9-dash line’, rejected as unlawful in a landmark 2016 case.

It might also explain why the rest of the region (and the US) has pushed back — few like the idea of Marxist-Leninists controlling their chokepoint, let alone annexing islands 1,000km from China’s mainland. And ditto, Beijing dislikes the idea of not controlling it all.

So… the Marcos administration has now… 

• Accused China-based fishermen of dumping cyanide near a Philippine outpost

• Opened a new coast guard command center on its disputed Thitu Island, and

• Renamed 100+ maritime features claimed by China.

He also just joined the US-led Pax Silica initiative, announcing a vast new AI-native Economic Security Zone (aka come invest here).

How to square all this hardball with Marcos Jr's remarks about re-opening China talks… to jointly explore waters he clearly insists aren’t actually ‘joint’? It’s all about… 

3. Security 

If you read through Manila’s South China Sea statements, you’ll see the word “sovereignty” sprinkled like a Salt Bae steak. That might explain why the Philippines and its US allies just launched their annual Balikatan (Shoulder-to-Shoulder) exercises, featuring…

• A record 1,400 Japanese troops (10x last time), who’ll…

• Use Japan’s own anti-ship tech to sink a decommissioned ship, and

• It’s all happening closer than ever to Taiwan and disputed South China Sea zones.

It’s about making China think twice before yoinking more South China Sea islands or even Taiwan, while also signalling that a) Japan is no longer just a passive observer, b) the region is no longer fully reliant on US kit, and c) the US isn’t so stretched by Iran.

But all that to say we’ve now got Manila verbally hinting one thing (South China Sea flexibility) while practically demonstrating another (South China Sea hardball).

Which to believe? Here’s a hint: Marcos Jr’s ‘joint exploration’ rhetoric will have pleased Beijing, but any action is way in the distance beyond some big political and constitutional hurdles.

So here’s the big signal among all the noise: squeezed between an energy shock and US-China rivalry, Manila is making political (if still hollow) overtures to keep Beijing happy, while doubling down on a 74-year-old US security pact.