The Philippines’s Department of Energy (DOE) has announced plans to reconvene with industry players as the geopolitical conflict in the Middle East continues to escalate.
According to DOE oil industry management bureau director Rino E. Abad, the Mean of Platts Singapore (MOPS) price index saw gasoline prices jump from US$79.63 per barrel on 27 February to US$90.32 by 2 March – a 13 per cent increase over a 3-day period.
On the same day, the Strait of Hormuz, which handles roughly 20 per cent of fuel traveling from the Middle East, was closed, forcing suppliers to use longer routes.
This surge in global oil prices directly affects over 1.2 million households in the Philippines’ island communities and off-grid areas, which face an increased risk of prolonged power outages. Off-grid communities are not connected to the national power transmission network and rely primarily on diesel power plants located within the islands for their electricity requirements.
With more than 400 megawatts (MW) of installed diesel and bunker fuel capacity servicing off-grid regions, the energy security of these communities hangs in the balance. As the Philippines imports 73.3 per cent of its diesel requirements, these communities now face significant power disruptions due to the military conflict in the Middle East.
If oil prices continue to escalate and the geopolitical conflict drags on, this can deplete the fund for Universal Charge for Missionary Electrification (UCME) used to provide subsidies for fuel in off-grid areas faster. This, in turn, could lead to an increase in UCME rates being collected from all on-grid electricity consumers.
Similar to what happened during the 2022 Ukraine-Russia crisis, a prolonged conflict can also lead to 8- to 16-hour blackouts in some off-grid areas if fuel subsidies and diesel stocks are depleted.
The country’s island communities and off-grid areas rely almost exclusively on power plants operated by the government-owned National Power Corporation Small Power Utilities Group (NPC SPUG). About 99 per cent of the 79 NPC-SPUG power plants operating across 70 islands run on diesel fuel, exposing NPC SPUG significantly to global price shocks.
Lessons from the 2022 Ukraine-Russia crisis
In 2022, Brent crude prices hit US$120 per barrel for the first time since 2014 due to the Ukraine-Russia conflict. This caused Philippine diesel prices to surge by more than 30 pesos per liter within a year. In turn, this led to the ballooning of NPC-SPUG’s payables to its diesel suppliers to more than 5 billion pesos (roughly US$95 million).
The doubling of diesel prices, coupled with a fixed UCME fund, left NPC-SPUG without sufficient cash to settle its fuel suppliers. Between January and May 2023, NPC-SPUG power plants implemented rotating brownouts across Palawan, Masbate, Marinduque, and Catanduanes due to budget constraints for diesel procurement.
In some areas, electricity supply was limited to 6 to 12 hours a day.
The increasing utilization of the UCME Fund is reflected in the 15 per cent cumulative annual growth rate of the UCME Rate charged to all on-grid consumers from 2022 to 2026. During this period, the UCME Rate increased from 15.61 cents per kwh to 27.63 cents per kilowatt-hour (kwh).
In February 2026, the UCME registered its highest increase in five years, rising by 38 per cent year-on-year, allowing NPC to catch up and settle most of its arrears from fuel suppliers, service its loans, and prevent blackouts in NPC-SPUG areas, among others. The NPC based its requirements on a projected fuel price of 77.0692 pesos per liter and a total diesel volume of about 198,620 kilolitres, and has not yet accounted for increased price volatility due to global conflict.
To cushion the impact of oil price shocks from geopolitical conflicts, the Philippine government has implemented measures to lessen NPC’s exposure to global price volatility. NPC is undertaking its Accelerated Hybridization Program (AHP), which aims to launch 14 initial diesel-solar-battery hybrid plants, with 25 additional sites planned by the end of 2026. Through AHP, NPC plans to reduce diesel consumption by at least 20 per cent in the power plants, with the end goal of reaching a full transition to renewable by 2030 across all NPC-SPUG areas.
Since the 2022-2023 crisis, the national government initiated new safeguards, including 2.5 billion pesos (about US$47.5 million) in the 2025 budget for available fuel subsidies to NPC and allowing NPC to borrow from banks to pay fuel suppliers pending the release of subsidies from the UCME fund.
Two months’ supply
Notwithstanding these measures, anticipated disruptions in the flow of diesel supply could further exacerbate the situation. Existing DOE regulations require oil companies to maintain a minimum inventory equivalent to 15 days of supply of diesel.⁶
As of the date of this report, the DOE confirmed the Philippines has a supply of finished petroleum products of about 60 days, which provides a buffer against immediate shortages, even if it doesn’t stop the price from rising.
The Organization of Petroleum Exporting Countries (OPEC) has signified its intent to increase oil production at a modest rate to soften any price volatility resulting from the ongoing conflict in the Middle East. Should global tensions subside towards the end of 2026, there may be a surplus in global oil markets, which could effectively keep local diesel prices at 55 pesos to 65 pesos per litre.
In these scenarios, let’s pray we will not reach 77 pesos, allowing the NPC to keep its buffers intact – but we should be prepared for any eventuality.
Benefits of transitioning to clean energy
It is important to transition off-grid communities from diesel to renewable energy. Electric cooperatives operating in island communities and off-grid areas being serviced by NPC-SPUG can develop their own RE power plants to lessen reliance on diesel. Data shows that off-grid areas have about 550MW of potential capacity in solar and about 23MW of potential capacity in biomass.
A rapid decrease in project costs for renewable energy and energy storage systems has allowed renewables to be significantly cheaper than diesel on a per-kwh basis, especially in off-grid locations.
With more support, transitioning to renewable energy sources can insulate the country’s off-grid and island communities from fuel supply chain constraints, strengthen energy sufficiency and improve overall resilience.
Since 2023, Climate Smart Ventures (CSV) has spearheaded various initiatives to empower vulnerable off-grid areas to transition from heavy reliance on fossil fuels through modernisation and renewable energy hybridisation.
To date, CSV has engaged more than 44 electric cooperatives and developed critical technical and financial roadmaps, allowing off-grid electric cooperatives to accelerate the shift towards more renewable power generation while keeping a stable, secure, and affordable power supply and grid.
These efforts were implemented in close coordination with key partners in government, including the National Electrification Administration (NEA) and the Department of Energy (DOE).
CSV also released a landmark policy paper titled Advancing Off-Grid Energy Transition: Strategic Deployment of Renewable Energy, Storage, and Smart Grid among Philippine Electric Cooperatives, which provides a finance-ready roadmap for cooperatives to evolve into self-sustaining, climate-resilient utilities.
Through these efforts, CSV is not only enabling electric cooperatives to meet their climate goals but is actively building resilience against global energy shocks and supply disruptions inherent in fossil fuel dependence.
Matthew Carpio is the head of transaction advisory and Philippine operations and Ivan Galura is head of policy at Climate Smart Ventures, an advisory firm advancing the energy transition in Asia.
