How China Turned Fertilizer and Fuel into Diplomatic Weapons to Court The Philippines

The Philippines is facing a severe supply chain crisis triggered by the closure of the Strait of Hormuz following the US-Israeli military operations against Iran that began on February 28, 2026. The archipelago nation, heavily dependent on imported energy and fertilizers, finds itself caught between its historic military alliance with the United States and growing economic dependency on China, which is leveraging the crisis to reshape regional alliances through selective export guarantees.

ENERGY CRISIS AND FUEL SHORTAGES

The Philippines imports the vast majority of its crude oil from the Middle East and still relies on oil-fired power plants for electricity generation. When the Strait of Hormuz was effectively shut down in early March 2026, the country's fuel supply chain was immediately disrupted. President Ferdinand Marcos Jr. warned on March 7 that national oil reserves would only last 50 to 60 days. By March 9, gasoline stations in Manila were displaying "out of stock" signs, and fuel prices began surging. Government estimates projected gasoline price increases of 7.48 pesos per liter, diesel increases of 17.28 pesos, and kerosene increases of 32.35 pesos per liter.

The government responded with emergency measures starting March 9, including a four-day on-site workweek for government offices, a 10-20% mandatory reduction in fuel and electricity consumption across government agencies, a ban on government study tours and team-building activities, and mandatory virtual meetings where possible. Air conditioning was required to be set at 24 degrees Celsius or higher. President Marcos also asked parliament to authorize a reduction in excise taxes on petroleum products if crude oil prices exceed $80 per barrel.

Energy Secretary Sharon Garin confirmed that the country's fuel supply would last until end of April, with oil companies now building inventories for May. The Philippines maintains a regulatory requirement of 30-day crude oil inventory and 15-day finished petroleum product inventory, but the industry operates on just-in-time delivery models, making it highly vulnerable to sudden disruptions.

FERTILIZER SUPPLY DISRUPTION

The fertilizer situation is equally critical. The Philippines imports most of its fertilizer requirements, with nitrogen-based products (derived from natural gas) accounting for 63% of imports. Key suppliers include China (18%), Qatar (15%), and Saudi Arabia (4%). The Strait of Hormuz normally carries approximately one-third of globally traded fertilizer. With Qatari and other Gulf supplies disrupted, the Philippines faces potential shortages ahead of the planting season.

Agriculture Secretary Francisco Tiu Laurel confirmed that the country had already secured 84% of its fertilizer needs for the year, but uncertainty remains about whether contracted volumes will actually be delivered amid surging prices and logistical disruptions. Urea prices in Southeast Asia have jumped approximately 40% since the beginning of the conflict. The country holds approximately 86,300 metric tons of urea-based fertilizer in stock, and the Department of Agriculture has prepared 100 million pesos in fuel subsidies for 9,700 farmers and 15,000 fishers.

CHINA'S SELECTIVE EXPORT DIPLOMACY

In mid-March 2026, China imposed broad restrictions on fertilizer and fuel exports to protect its domestic market. Beijing banned exports of nitrogen-potassium fertilizer blends and certain phosphate varieties, while reiterating existing restrictions on urea. On fuel, the National Development and Reform Commission ordered a halt to all refined fuel exports (gasoline, diesel, aviation fuel) effective March 11.

However, China simultaneously offered bilateral exemptions to select countries. On March 17, the Philippine Agriculture Secretary met with Chinese Ambassador Jing Quan, who provided assurances that Beijing would not restrict fertilizer exports to the Philippines. China also offered to share agricultural techniques that reduce fertilizer usage without sacrificing crop yields, a gesture that Tiu Laurel described as "food diplomacy." On fuel, the Philippines received assurances that the Chinese export ban covered only new contracts, and that existing supply agreements would be honored.

This selective approach is part of a broader pattern. India has formally requested that China ease its urea export restrictions, but Beijing has yet to allocate any export quotas for 2026 and no decision has been made. Bangladesh sent a letter to the Chinese embassy seeking assurance on its contracted fuel volumes. Australia has publicly sought guarantees that existing fuel contracts would be honored. According to Reuters analysis, between 50% and 80% of China's fertilizer exports to major Asian buyers are now restricted, making the bilateral exemptions granted to the Philippines a significant diplomatic signal in a region where most countries are still waiting for answers.

THE PHILIPPINES AS A GEOPOLITICAL PIVOT

The Philippines occupies a unique position in the current crisis. As the 2026 chair of ASEAN, Manila is expected to lead negotiations on the long-delayed South China Sea Code of Conduct with China, with a target deadline of July 2026. At the same time, the country maintains the strongest US defense alliance in Southeast Asia.

Relations between China and the Philippines have seen significant recalibration in early 2026. On January 29, the two countries resumed political dialogue after more than a year of frozen relations. In early March, discussions began on potential joint coast guard patrols in the South China Sea, a dramatic shift after years of confrontations involving water cannons and vessel collisions near disputed features like the Second Thomas Shoal and Scarborough Shoal.

China claims most of the South China Sea under its expansive nine-dash line, which overlaps with the Philippines' exclusive economic zone (known locally as the West Philippine Sea). A 2016 ruling by the Permanent Court of Arbitration in The Hague invalidated most of China's claims under international maritime law, but Beijing rejected the ruling. Key disputed areas include Scarborough Shoal (roughly 120 nautical miles from the Philippine coast), the Second Thomas Shoal (where the Philippines maintains a military outpost on a deliberately grounded warship), and various features in the Spratly archipelago where China has built artificial islands with military installations.

US MILITARY PRESENCE AND ALLIANCE COMMITMENTS

The United States maintains its most extensive military partnership in Southeast Asia with the Philippines. Under the 1951 Mutual Defense Treaty, Washington has committed to defend the Philippines against armed attacks. Key elements of the current US military footprint include: the Enhanced Defense Cooperation Agreement (EDCA) providing access to multiple Philippine military bases, with $144 million allocated in fiscal year 2026 for site infrastructure; more than 500 joint military exercises and exchanges planned across 2024-2026, including the large-scale annual Balikatan exercise; and the deployment of advanced systems including the Navy-Marine Expeditionary Ship Interdiction System (NMESIS).

In December 2025, the US Congress authorized $2.5 billion in Foreign Military Financing grants over five years (2026-2030) plus $1 billion in military sales loans for the Philippines as part of the National Defense Authorization Act. During President Marcos's July 2025 visit to Washington, the first by an ASEAN leader in Trump's second term, $21 billion in private sector investment pledges were announced alongside $60 million in new foreign assistance for energy, maritime, and economic programs.

The Philippine military confirmed in mid-March 2026 that US defense assets had not been withdrawn despite the ongoing war in Iran, addressing concerns that Washington might redirect military resources to the Middle East.

STRATEGIC DILEMMA

The Philippines now faces a fundamental tension. The war in Iran, initiated by its primary military ally, has created the energy and fertilizer crisis threatening its economy. Meanwhile, China, its primary territorial rival, has positioned itself as a potential supply guarantor. The Philippines is scrambling to diversify energy sources, engaging simultaneously with China, Russia, Indonesia, South Korea, Singapore, Thailand, and Japan to secure fuel and fertilizer deliveries.

Vice President Sara Duterte's announcement of her 2028 presidential candidacy raises the prospect of a political shift toward a more China-friendly administration. Analysts at Brookings noted that against the backdrop of mounting domestic pressure, the current Marcos administration is likely to seek stability with Beijing rather than sustained confrontation. The crisis has exposed how quickly energy dependency can reshape strategic calculations, even for countries with deeply established Western alliance structures.