The Philippines ranks among the hardest-hit countries in the world from the spillover effects of the ongoing Middle East conflict, according to BMI, a unit of Fitch Solutions.

Analysts from the global research firm said during a Tuesday webinar that the Philippines’ heavy dependence on oil imports passing through the Strait of Hormuz has made it one of the most adversely affected economies in both the Asia-Pacific region and globally.

“The Asian countries with the biggest exposures are emerging markets, so Sri Lanka, Pakistan, and the Philippines,” said Lee Yen Nee, Senior Asia Country Risk Analyst at BMI.

“There’s a group of economies with very limited policy options, and this includes the Philippines, Pakistan, and Sri Lanka. And we have made the largest downward revision to our growth forecast here,” she added.

In light of the crisis, BMI slashed its Philippine gross domestic product (GDP) growth forecast for the year to 3.9 percent, a downgrade of around 1.3 percentage points. This marked BMI’s largest downward revision for any economy outside the Middle East region.

The firm also raised its 2026 headline inflation forecast for the Philippines to 6.1 percent, up by 3 percentage points and the second-largest upward revision among its global forecasts related to the energy shock, trailing only Egypt.

Lee emphasized how quickly the crisis affected the Philippine economy.

“In the case of the Philippines, it has limited fiscal space, so it has to allow fuel prices to rise. Growth was already weak coming into the crisis, but inflation has shot up and forced the hand of the central bank,” she said.

“And this also explains why our forecast revisions for the Philippines are our biggest across the region.”

Philippine GDP growth slowed further to 2.8 percent in the first quarter, marking the third consecutive quarter of deceleration. The government attributed the slowdown to lingering effects of last year’s flood control scandal, as well as the ongoing oil shock.

Meanwhile, headline inflation has risen to four times the end-2025 level as of April due to spillover effects from the Middle East conflict, prompting stagflation concerns among some economists.

The Philippines became one of the first countries in the world to declare a State of National Energy Emergency amid the crisis. The Asian Development Bank earlier noted that the country has since rolled out some of the most extensive policy responses in the Asia-Pacific region to cushion the effects of rising oil prices and supply disruptions.

Lee also highlighted the response of the Bangko Sentral ng Pilipinas (BSP), which became one of the first central banks in the region to raise interest rates in response to accelerating inflation.

“The central bank held an off-cycle meeting at the end of March, but ended up not adjusting policy rates and saying that raising rates at that time would weigh on growth,” she said.

“But one month later, when growth concerns became arguably more pronounced, the central bank ended up hiking rates, essentially deciding that it cannot ignore the feed-through of higher energy prices to inflation. So, this shows how quickly things can change and how an emerging market can get caught in a very tough spot,” Lee added.

BMI now expects the BSP to raise rates by a cumulative 100 basis points this year as spillover effects from the conflict continue spreading across other goods and services.

Despite renewed reports on Tuesday of US strikes against Iran in what Washington described as “self-defense,” BMI said it remains optimistic that a peace agreement remains achievable.

However, the firm warned that disruptions in the Strait of Hormuz are likely to keep oil prices elevated for longer even if a diplomatic breakthrough is reached soon.

“Crucially, we think that even if a deal is reached in the near term, the disruption to the Strait of Hormuz will linger at least into most of Q3, because operationally, security-wise, and even financially, it takes time for the flows to reinstate themselves through the Strait,” said BMI Director and Global Economist for Emerging Markets Nikhil Sanghani.

“And our oil and gas team thinks that oil prices will average about $90 a barrel this year, and so essentially stay higher for longer,” he added, noting that BMI still expects a gradual global economic recovery and stabilization in oil prices by the second half of the year should a peace agreement fully materialize.