Beyond the bloodshed

Nearly 5,000 Israeli and Palestinian lives are estimated to have been lost since the Israel-Hamas war broke out on Oct. 7, with more than two-thirds of it on the Palestinian side, and the toll rises by the day. A far greater number are wounded. So far, four Filipinos are known to have died among over 200 foreigners who have perished from the continuous bombings. Beyond these direct human costs, the persistent question being asked of me as an economist is: how will this new war affect the Philippine economy and the everyday lives of Filipinos?

The same question arose when Russia invaded Ukraine early last year. The logical starting point was to assess our direct economic linkages with the countries involved, in terms of trade, foreign direct investments (FDIs), and expat Filipino workers they host and remittances they send home. Our direct linkages with both countries are minimal. But it was the indirect impacts of the conflict’s effect on the world economy that hit us hard. One and a half years later, we still bear the continuing adverse impact through the general escalation of prices—notably of petroleum products including fertilizers, and food, especially cereals like rice and corn—and dampened economic growth.

The same could be said now about the new war. The halt in these economies would have insignificant direct effects on us, given our minimal (albeit growing) economic linkages with Israel, and negligible linkages with Palestine. But the so far localized war has the potential of being far more cataclysmic than the Russia-Ukraine war, depending on how events unfold in the weeks and months ahead.

Last year, Israel’s Ministry of Economy and Industry recorded total merchandise trade between our two countries at $534 million, with nearly two-thirds ($340 million) in Israel’s favor (i.e., their exports to us). The balance of $193 million represented our exports to them, a mere 0.2 percent of our total of $79 billion. Their exports to us (our imports from them) had jumped 94 percent from 2022, while our exports to them had increased by 39 percent. The bulk (83 percent) of what we sold them were electronic products like integrated circuits, printing machinery, engines and motors, telephone sets, vacuum cleaners, and water heaters. Farm and food products contributed 6.1 percent, mainly fruits and nuts (coconut), fruit juice, baked goods, tapioca, and fish products. The rest included textiles, footwear, bags, clothing and accessories, gas and water meters, and medical instruments.

Nearly half of what they sold us were machinery and electronic equipment, especially semiconductors, telephone sets, integrated circuits, automatic vending machines, and data processing equipment. Transportation equipment, mostly military aerospace, and maritime equipment, accounted for nearly a third. Others included base metals, optical fiber, medical appliances, and agriculture products such as fruit juice, sauces, sugar, and edible vegetables. Meanwhile, we recorded $3.41 million of FDI from Israel in 2022, and an estimated 30,000 Filipino workers there sent home some $110.6 million to their families. These represent a miniscule 0.03 and 0.34 percent of the total FDI and remittances, respectively.

Even more miniscule, or practically negligible, are our direct links with Palestine. In 2021, we exported only $550,000 worth of goods to them, mostly computers, along with shaving products and vegetable saps. We recorded no imports from them. In 2022, some $20,000 in FDI and $34,000 in remittances were recorded coming in from Palestine.

Miniscule as these direct linkages are, it’s again the indirect effects through the impacts on the world economy that would be damaging. The effect on fuel prices, volatile as they already are, could be debilitating if crude oil shoots up beyond $120 per barrel (it peaked at $140 in mid-2008 at the height of the world financial crisis). Steep oil prices hit us with a one-two punch. One, they hike prices across a wide range of goods and services because of costlier energy and transport. Two, they push the value of the peso down because our demand for dollars to pay for our hefty fuel import bill gets jacked up. The result is further higher prices due to generally costlier imports, the bulk of which are production inputs. Through all this, it’s the poor who suffer most.

Thankfully, the war has so far only mildly raised oil prices. But the feared scenario is Iran stepping into the war; Hamas reportedly claimed to receive Iran’s support on the invasion. Iran’s entry could trigger the involvement of its allies Russia and China, and with the US behind Israel, the conflict could turn into a catastrophic global war. Our only comfort is that nobody wants that. But wayward impulses often start wars, so God help us.

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