Instability in the Middle East will have a tangible impact on the Philippine economy

Rodrigo Duterte met Vladimir Putin on the sidelines of the Valdai International Discussion Club in SochiPhoto: Kremlin

A high volume of Filipinos working in the Middle East means the Philippine economy is inescapably linked to tensions between the US and Iran.

Editorial

Scores of mourners turned out in Tehran to pay their respects to Qasem Soleimani on Monday. The Iranian general’s death in a US airstrike on Iraqi soil prompted an outpouring of emotion. Politicians, including Iran’s Supreme Leader Ayatollah Ali Khamenei, wept in public as the Trump administration rushed to defend its actions.

The events unfolding in the Middle East may feel a world away from Southeast Asia but for the Philippines, rising US-Iran tensions could jolt the domestic economy.

Filipinos have a strong presence across the Middle East

Almost 2.3 million Filipinos live and work overseas, with most working in the domestic work and service industries. By far the most popular destination for overseas Filipino workers in the Middle East.

Map of distribution of Filipino overseas workers by region

Around 55% of overseas foreign workers (OFWs) are based in the Middle East and West Asian region, with half of those working in Saudi Arabia. This amounts to some 1.25 million Filipinos living and working in the region.

The Armed Forces of the Philippines (AFP) released a statement in the wake of Soleimani’s death that revealed 1,600 overseas workers from the Philippines were living and working in Iran, while 6,000 were based in Iraq.

Arsenio R. Andolong, a Department of National Defence spokesperson, said President Rodrigo Duterte had tasked AFP with the evacuation of these men and women if open hostilities break out.

The threat is not just to loss of Filipino life

While the preservation of Filipino life would be the priority in the event of violent conflict, it is not the only danger emanating from heightened US-Iranian tensions.

The average overseas worker sends 83,000 pesos (US$1,630) back to the Philippines each year. These remittance payments to the families of those working abroad have become a vital part of the Philippine economy.

Foreign remittance payments are the second-largest source of foreign capital and account for more than 10% of the Philippines’ gross domestic product (GDP). These payments are a boon for local families who spend the payments on food, education, or entrepreneurial endeavours, significantly bolstering consumer spending within the domestic economy.

Remittance inflows as a percentage of Philippine GDP

If the situation worsens and Filipino workers are forced to return to the Philippines from Iraq and Iran, Filipino families could lose out on some US$12 million annually in remittance payments from workers in the two countries. If the conflict spills over to other countries, the economic impacts will be much higher.

If Middle Eastern stability is threatened, vast sums of remittance payments could be discontinued

The killing of Qasam Soleimani has raised concerns over regional stability. Despite US Secretary of State Mike Pompeo’s insistence that the US “took a bad guy off the battlefield”, the risk of some form of violent confrontation between US and Iranian forces seems more likely now than at any time in the last four decades.

Iranian General Amir Ali Hajizedah warned that “the only thing that can compensate for his [Soleimani’s] blood is the complete removal of America from the region.”

Another senior Revolutionary Guard general confirmed that the Iranian regime has identified 35 US targets in the region, as well as other targets within Israel, and threatened to disrupt the region’s oil transportation arteries.

Filipino worker numbers in Middle Eastern countries

Should targets be hit across the Middle East, the security of the entire region could be called into question. A Middle East mired by conflict would cause a significant disruption to remittance payment flows into the Philippines.

For those living in Iraq and Iran, it may be too late. Dr Renad Mansour, a senior research fellow for the Middle East and North Africa program at Chatham House, an independent policy institute, said Soleimani’s death at the hands of the US “jeopardizes Iraq’s recently stabilized security situation, and threatens to reshape the country’s political environment.” He also predicted a return of sect-based mobilisation and the use of anti-Americanism as a rallying tool within Iraq.  

While Filipino nations may not be direct targets, the economic downturn caused by conflict could reduce employment opportunities.  

As Duterte continues to closely monitor the security situation in Iran and Iraq and makes the necessary military and financial preparations for a potential evacuation, he will no doubt have one eye on the economy. With spending up in 2020, he cannot afford for bombs in the Middle East to dam the steady trickle of remittance payments to which the Filipino economy has grown so accustomed.