Higher transport, grocery prices: How the surge in oil prices could impact Singapore

Consumers could also cut back on travel plans that may have involved flying through the Middle East airline hubs, she added.

The extent of economic impact would depend on the evolving situation in the Middle East, he added.

If oil prices stay higher for longer than six months, there will be a “significant impact” on growth and inflation forecasting, he said.

But it is still early days, he said. “It is only the first week, and a lot of things have already happened,” he said.

“What we’re seeing in terms of energy costs reflects that uncertainty over demand and supply conditions, not just today, but also in the coming days and weeks.”

IMPACT COULD BE SHORT-TERM 

One economist noted that while energy prices may cause a short-term bump in inflation, they are unlikely to derail the broader disinflation trend.

Ms Sheana Yue, a senior economist at economic advisory firm Oxford Economics, said businesses may not pass on all the higher costs immediately. Instead, the price increases are likely to be gradual, as some firms may absorb part of the extra expense.

Singapore has buffering measures and regulatory tools to smooth out energy price shocks, she added.

For example, quarterly tariffs in the electricity market help to average out periods of volatile energy prices, while the Monetary Authority of Singapore’s exchange rate mechanism helps reduce the impact of rising import prices.

“In short, we expect the impact to be manageable and largely temporary for most households,” she said.  

Analysts also noted that, as one of Asia’s largest refining and oil trading hubs, the macroeconomic impact of the war could be cushioned if profit margins at refineries remain strong.

“Historically, this has meant that higher Brent oil prices are associated with better terms of trade for Singapore, suggesting it is not a pure loss for the economy,” said Ms Yue.

Ms Ling agreed that Singapore’s role as a refining, storage and trading ecosystem means it could see stronger demand for fuel processing, blending and storage services.

“That said, this may not fully offset the broader economic drag if oil prices remain elevated for an extended period of time and start to weigh on global trade and growth,” she said.