Mark Bendeich (Reuters): We are going to start off with, obviously, the Iran war. I wanted to ask you, for those investors and businesses who are deciding now to leave Dubai, what would you say to them about Singapore, at the moment, as a destination for investment and capital?
Minister Vivian Balakrishnan: That is rather narrowly focused. If I take a step back, 90% of the volume of oil that normally traverses the Strait of Hormuz is usually destined for Asia; another 10% or so for maybe Europe. If you look at LNG [Liquefied Natural Gas], 83% of LNG that transits through the Strait of Hormuz is destined for Asia. Right now, the closure of the Strait of Hormuz is, in a sense, an Asian crisis. Now, I know the military protagonists are basically Western versus Iran and the Gulf states themselves, but the economic impact is going to be predominantly Asian. You have this asymmetry of the military dimension and the economic dimension. A lot of people still have not realised: in 2016, America overtook Saudi Arabia to become the largest oil producer; in 2017, the largest natural gas producer. By 2019, America was a net energy exporter- very different from the circumstances five decades ago. Remember, there was a Carter Doctrine on the importance of the Strait of Hormuz for America? You think about the Gulf wars, the strategic calculus and the dependence of America on uninterrupted energy supplies is completely flipped. My first point: this is actually a big Asian problem. Depending on how long this continues, it can well lead to a crisis. It is a crisis not just of energy, but of other secondary impacts. Fertilizers, which then will impact the yields from the harvest. And again, I would remind your readers to remember four or five years ago, when Sri Lanka tried to do away with fertilizers, and you saw the impact on yields. So that is another knock-on impact which we worry about which will come about later. In fact, my colleagues in Asia are deeply worried, and we have obviously been having a lot of discussions, formal and informal, amongst ourselves, as to what to do, how to respond, and what the prognosis for the situation is.
Bendeich: On that, what is the worst-case scenario for an Asian crisis, and how does Singapore respond?
Minister: First, let me deal with it as Asia as a whole. We are net energy importers from the Middle East and the Strait of Hormuz. It is something which has been there for a long time. The vulnerability is known, but it has never been tested to the extreme that it is being tested today. In fact, the next 12 to 18 hours are the critical hours when the deadline expires, because if indeed you get tit-for-tat destruction of energy infrastructure, then you are dealing not only with an immediate blockage of the Strait, but you are dealing with scarring of energy infrastructure from the Middle East, which means a prolonged period in which energy exports will be diminished. This will have an impact. The first order impact is high oil prices, high gas prices, accompanied by high volatility. The second order: in practice, you will have an increase in inflation across the board. And of course, the worry beyond that is that these things tend to become sticky, and all this is happening at the time when Asia was hoping to be on more stable footing and getting growth in order, and spreading the fruits of that growth to as many people within your population as possible. It is not coming at a brilliant moment. That is where both the economic and political anxiety is. We will have to see. Obviously, this is just a top line summary. You will have to look at it country by country to assess probabilities and sometimes opportunities. But right now, this is a time to be worried. This is a time to assess our abilities. This is a time to dust off contingency plans and put everything on the table.
Bendeich: And Singapore’s contingency plans. What would they include?
Minister: First, let me put it to you this way. We are an energy importer. There is no doubt to it. Fortunately, we have diversified our sources of energy, although I will say that a significant proportion of our LNG obviously comes from the Gulf. We have got some very good, steady, and reliable friends amongst the Gulf states, who have absolutely been trustworthy, reliable partners all these years. But through no fault of theirs, this transmission of energy to Singapore has been impacted. Fortunately, because we have LNG terminals, we are therefore able to import from the world market. And also, fortunately, because we have got the fiscal buffers. We will have to pay what the international rates are. What I will not go through in detail is that we also have buffers internally – reserves, which all countries should have. But none of this will protect us from the inflationary impact of high energy prices. This is something which we will have to deal with within our economy and obviously from a social security point of view. Fortunately, you may recall that one of the criticisms levelled at us in the recent Budget debate was our surplus that was unexpectedly high. At a time like this, we should all be thankful that the Finance Minister, who happens to be our Prime Minister, has a few cards up his sleeve.
Bendeich: Do you think he will need to play those chips up his sleeve?
Minister: I am not in a position to make pronouncements, or maybe you have to ask him that. We are watching this situation very carefully as an open economy, as an economy where trade is three times our GDP, as an energy importer, all these amber lights are flashing for all of us. What to do depends very much on how high prices go, how long it prolongs, and what happens when you get the inevitable restructuring of supply chains, and you will have to adapt. It is still too early to be definitive, but the point is Singapore is fortunate that we have got some fiscal buffers. We are fortunate that we have significant sovereign wealth funds that generate returns. For most countries, including some very big countries, they spend a significant chunk, sometimes up to 3% of GDP, servicing debt. For us, it is a complete reverse. We are collecting dividends on our reserves, so having that fiscal firepower is essential.
Bendeich: You lived through the Asian Financial Crisis, then the Global Financial Crisis. Is this potentially something that, for Asia, rivals or even exceeds those previous crises?
Minister: It is too early to say, but as someone who has lived through those, you always want to prepare for the worst and hope for the best. Anything after that is an upside.
Bendeich: Minister, are you disappointed in the US?
Minister: I am disappointed that the negotiations broke down. I will confess that I was surprised with the onset of hostilities. I did not think it was necessary. I do not think it is helpful. Even now there are doubts expressed about the legality of the situation. But let us set all that aside. Let us just be realistic. This is a pile of bad news, and what we are witnessing is actually, whether you realise it or not, the entire global economy has been taken hostage and we will all pay a price on hostilities. It is what it is. As I said, the key parameters now are how high and how long and what are the secondary scarring effects it has on infrastructure in the Middle East and on the real economy, especially in Asia.
Bendeich: Is the US any longer a reliable, steady partner?
