Navigating the Minefield of Oil and Markets

When missiles begin flying in the Middle East, global investors instinctively look toward oil charts before they look toward maps.

Estella B. Villamiel, Department Head for Institutional Research at First Metro Securities, delivers a briefing on the economic and market implications of the escalating US–Israel–Iran conflict during a recent session of the Monday Circle. [Photo: Andoy Beltran]

The latest confrontation involving the United States, Israel and Iran has produced exactly that reflex.

Brent crude spiked. Shipping insurers recalculated risk. Tanker routes through the Persian Gulf suddenly looked less certain. Yet for markets the question has never been simply whether conflict is escalating.

The deeper question is how long the disruption might last and how far its economic shockwaves can travel.

Those questions formed the centerpiece of a recent private briefing delivered by First Metro Securities to members of the Monday Circle, a respected gathering of stockbrokers, investment bankers, media practitioners, corporate executives and policy observers who meet regularly over breakfast to exchange insights on economic, financial and geopolitical developments.

In the session titled Beyond Headlines Understanding the Iran Conflict’s Impact, Estella B. Villamiel, Department Head for Institutional Research at First Metro Securities, offered a sober reminder that geopolitical conflict rarely stays confined to the battlefield.

Energy markets transmit the shock first. Inflation follows close behind.

Currency expectations adjust. Interest rates react. Only then do investors begin to see the consequences appear in corporate earnings and equity valuations.

“The conflict should not be viewed purely as a geopolitical story,” Villamiel told participants.

“For markets it becomes a macro transmission story where higher energy prices feed into inflation, currencies, interest rates and eventually equity valuations.”

For Philippine investors the relevance is immediate. The country sits thousands of kilometers away from the Strait of Hormuz, yet the financial consequences of disruption there can travel quickly through oil prices, shipping costs and supply chains.

When roughly a third of the world’s seaborne oil passes through a narrow maritime chokepoint only thirty-nine kilometers wide, even a temporary slowdown in tanker traffic can send tremors across emerging markets.

The Philippines is particularly exposed because it runs a structural energy deficit with the Middle East. Higher crude prices do not merely raise pump prices.

They widen the import bill, feed into transport costs and eventually seep into food prices and household inflation.

Villamiel explained that markets are currently reacting less to destroyed infrastructure than to the fear of disruption itself.

“What we are seeing right now is primarily a logistics and supply risk shock,” she said.

“Oil is still flowing, but the cost of moving that oil through the region has increased because of insurance premiums and shipping risks.”

This distinction matters for investors. If the disruption proves brief, markets may treat the conflict as a temporary spike in volatility. If it lingers long enough to entrench inflation expectations, central banks may find themselves forced to delay interest rate cuts.

The difference between a short shock and a prolonged one can determine whether equities rebound or struggle under the weight of higher financing costs.

“The first oil spike usually hits sentiment,” Villamiel said during the briefing.

“What investors really need to watch is duration. If the disruption lasts long enough to push inflation higher for several quarters, that is when it begins to affect monetary policy and earnings.”

For Philippine equities this macro lens reveals a patchwork of risks and opportunities. Some sectors lie directly in the line of fire of higher oil prices.

Airlines are the most obvious example. Fuel and foreign exchange costs represent a major share of operating expenses for carriers such as Cebu Pacific and Philippine Airlines. A sustained increase in jet fuel prices quickly squeezes margins.

Airlines are among the most vulnerable to rising oil prices, as fuel and foreign exchange costs represent a large portion of operating expenses for carriers such as Cebu Pacific and Philippine Airlines. [Photo: JG Summit Holdings]

Transport and logistics businesses face similar exposure. Rising diesel costs filter through freight rates and supply chains. Retailers then encounter higher logistics expenses, which must either be absorbed or passed on to consumers.

Food manufacturers are particularly vulnerable when they lack strong pricing power.

Companies such as Universal Robina and Monde Nissin face pressure from multiple directions at once through wheat costs, transport expenses and electricity prices.

The risk extends further into consumer spending. If energy inflation spreads into transport fares and food prices, discretionary spending tends to soften. Casinos, malls and high-end retailers become sensitive to shifts in household budgets.

Restaurants and food service operators can weather some cost increases, but only if customers remain willing to pay slightly higher menu prices.

Yet geopolitical shocks rarely punish every sector equally. Defensive companies often emerge as safe harbors during periods of uncertainty.

Real estate investment trusts occupy a prominent place in this category. Names such as MREIT, AREIT and RL Commercial REIT offer stable rental income and attractive dividend yields that can cushion portfolios when equity volatility rises.

Real estate investment trusts including MREIT, AREIT and RL Commercial REIT can provide relatively stable rental income and dividend yields, helping cushion portfolios during periods of equity market volatility. [Photo: MREIT]

Telecommunications firms also provide resilience.

PLDT and Globe Telecom generate recurring revenue streams from services that households treat as essential. Their steady cash flows and dividends make them natural anchors in portfolios navigating turbulence.

Telecommunications providers like Globe Telecom benefit from recurring revenue streams as households continue to treat connectivity services as essential infrastructure even during economic uncertainty. [Photo: PSE]

Consumer staples can serve a similar role.

Grocery chains and basic retail operators such as Puregold often prove more resilient than discretionary brands because demand for daily necessities remains stable even during inflationary periods.

Meanwhile companies tied to renewable energy such as ACEN and SP New Energy enjoy relative insulation from spikes in fossil fuel prices, which can weigh on traditional coal or LNG dependent generators like AboitizPower and Semirara Mining and Power Corporation.

Traditional power generators reliant on coal or LNG, including AboitizPower and Semirara Mining and Power Corporation, may face margin pressure when global fuel prices surge and input costs rise. [Photo: AboitizPower]

The broader portfolio strategy implied by the First Metro analysis resembles a careful journey across uncertain terrain.

Investors must identify which parts of the market lie closest to the potential explosion of higher energy costs and which areas offer shelter.

Airlines and transport sensitive names sit near the epicenter of the shock. Food manufacturers and discretionary retailers stand a few steps further away but remain exposed to second round inflation.

Renewable energy developers such as SP New Energy can be relatively insulated from fossil fuel price spikes, offering investors partial protection when oil and gas markets become volatile. [Photo: SP New Energy]

Defensive assets occupy safer ground. REITs, telcos and staple oriented retailers offer stable income and predictable demand patterns that allow them to withstand inflationary pressures more comfortably.

Large capitalization companies with strong balance sheets and international investor following also tend to recover faster when geopolitical tensions ease.

All of this depends on the central variable that markets cannot yet measure with certainty.

Duration will determine whether the shock remains manageable or becomes transformative. If shipping flows through the Gulf normalize quickly and oil prices retreat, equities may regain momentum and investors may rotate back into cyclical growth names.

If disruption drags on long enough to push Brent crude toward triple digit territory, inflation could linger and delay monetary easing across emerging markets.

That uncertainty is why liquidity itself becomes a strategic asset.

Holding some cash allows investors to react quickly if volatility creates buying opportunities. Geopolitical shocks often generate exaggerated price swings before fundamentals reassert themselves.

The ability to deploy capital at the right moment becomes as important as the choice of stocks themselves.

For Philippine investors the lesson from the Iran conflict is not that markets should be abandoned in fear. It is that portfolios must be constructed with awareness of how global events ripple through local economies.

Oil shocks do not stop at the fuel pump. They travel through transport networks, supply chains and inflation expectations until they appear in balance sheets and earnings reports.

Navigating such an environment resembles walking through a field where hidden risks lie beneath the surface.

Some steps are safe while others may trigger unexpected consequences.

The task for investors is to move carefully. Avoid areas where energy costs and weak pricing power intersect. Seek shelter in companies with steady cash flows and resilient demand. Maintain liquidity in case the terrain shifts suddenly.

In the end geopolitical conflict is beyond the control of any investor. What remains within reach is the discipline to position portfolios wisely. As Villamiel put it during the briefing,

“In emerging markets, energy shocks rarely stay confined to energy. They quickly migrate into inflation, currencies and policy decisions.”

The minefield may be unpredictable. But investors who understand where the risks lie still have a chance to cross it safely.

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DISCLAIMER: FirstMetroSec is a member of the Metrobank Group. By policy, FirstMetroSec does not cover listed companies within the Metrobank Group, including but not limited to, Metropolitan Bank & Trust Company (MBT), GT Capital Holdings, Inc. (GTCAP), and Philippine Savings Bank (PSB).

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