Singapore faces economic risks amid Middle East conflict

SINGAPORE – Singapore’s economic growth in the coming quarters is likely to be affected by the ongoing Middle East conflict, and inflation is expected to be higher than earlier estimated, Deputy Prime Minister Gan Kim Yong said on April 7.

He told Parliament that the impact of supply disruptions and higher prices of energy as well as raw materials will cascade through the economy, pushing up business and transport costs and consumer prices.

This will in turn dampen demand and slow down economic growth worldwide.

Singapore will not be able to insulate itself completely from the crisis, and must respond with a coordinated, multi-agency effort to cushion the impact on its people and economy, he added.

With the conflict involving the US, Israel and Iran entering its sixth week, Singapore is already suffering from higher petrol prices and electricity tariffs. If the conflict is protracted, higher inflation in Singapore’s source markets could also lead to further import price increases over time, DPM Gan said.

“These pressures will be felt by households in more expensive electricity, transport and daily necessities,” he added. “Lower-income households will be more affected, as a larger share of their spending goes towards essentials.”

DPM Gan noted that while many sectors will be hit, some will feel the effects more than others.

In manufacturing, industries that rely on natural gas as well as crude oil and its derivatives as feedstock will be most directly impacted.

Beyond energy and chemicals, industries such as electronics, precision engineering and other energy-intensive clusters will also be affected by higher fuel and electricity prices.

Outward-oriented sectors like air and sea transport and tourism will feel the impact of higher costs and weaker external demand.

Domestically oriented sectors such as retail, food services and private land transport will also face higher operating costs, DPM Gan added.

“Taken together, these sectoral impacts will weigh on economic activity in the coming quarters, although the extent remains uncertain as the conflict is still unfolding,” he said.

DPM Gan, who also heads the Ministry of Trade and Industry (MTI), said his ministry will continue to monitor economic developments closely and update its gross domestic product (GDP) forecast in May.

In February, MTI upgraded Singapore’s 2026 GDP growth forecast to a range of 2 per cent to 4 per cent, driven by strong growth momentum and supported by robust artificial intelligence-related demand.

While early data indicates that economic activity continued to be resilient in the first quarter of 2026, growth in the coming quarters is likely to be affected by the conflict, he said.

Meanwhile, the Monetary Authority of Singapore (MAS) will take price-related developments into account in its upcoming assessment of the inflation outlook, which it will release on April 14.

MAS had earlier forecast all-items and core inflation – which excludes private transport and accommodation costs – to come in at 1 per cent to 2 per cent in 2026.

After five weeks of effective closure of the Strait of Hormuz, experts increasingly sense that the forces unleashed by the war – runaway energy prices, fuel shortages and rising inflation – will be hard to contain, regardless of what comes next.

Measures ranging from pipelines that bypass the waterway – which allows oil and natural gas to flow from the Persian Gulf to the rest of the Indian Ocean – to tapping strategic reserves have offered a cushion.

But this still leaves a gap of at least eight million barrels per day between supply and demand, according to the International Energy Agency (IEA).

Since most of the energy flowing from the Gulf is destined for Asia, including Singapore, regional policymakers face tough decisions to mitigate the pain. Those decisions will get tougher if hostilities do not end soon enough.

DPM Gan said that in March, only about six vessels on average passed through the Strait of Hormuz each day, compared with about 135 normally, making the supply disruption the worst since the 1973 oil embargo.

“President Trump has said recently that the US has almost accomplished its goals in Iran, but it is still not clear when the conflict will end and when the Strait will be reopened,” he said, referring to US President Donald Trump.

DPM Gan added that the crisis is unlikely to be over any time soon and Singapore must be prepared for its effects to persist for some time.

“Even more worrying is the risk of escalation – including further damage to energy infrastructure, or a prolonged blockade of the Strait of Hormuz,” he said. “This could trigger a global energy crunch – slowing global growth and pushing up inflation worldwide.”

IEA executive director Fatih Birol said in March that the war has “severely or very severely” damaged more than 40 energy assets across nine Middle Eastern countries, potentially prolonging supply disruptions even after the conflict ends.

DPM Gan said that as a small and highly open economy, Singapore will not be able to insulate itself completely from the crisis. It therefore needs to be prepared for more frequent shocks and disruptions in a world of heightened geopolitical contestation.

To this end, the recently formed Homefront Crisis Ministerial Committee will respond with a coordinated, multi-agency effort to cushion the impact on Singapore.

It will focus on securing supplies of fuels, such as liquefied natural gas (LNG) and diesel for power generation, as well as other essential products like jet fuel and petrol, DPM Gan said.

It will also strengthen economic resilience by helping businesses to preserve their productive capacity and capability, and facilitate their transformation where necessary.

The committee will also look at providing targeted help for those most affected by the crisis, including businesses in the energy and chemicals cluster, platform workers and low-income families.

Workers will be given training and employment support, while households will receive help to address cost-of-living concerns.

At the same time, businesses and households need to do their part to conserve energy.

Households can use climate vouchers to purchase more energy-efficient appliances, adopt simple measures such as using fans instead of air-conditioning, and take public transport instead of driving, said DPM Gan.

Businesses can tap schemes such as the Energy Efficiency Grant and invest in more efficient equipment.

Meanwhile, DPM Gan said, Singapore will also strengthen its resilience against inflation shocks and supply chain disruptions by building up inventories and diversifying its sources of supply. But it will always remain dependent on imports for its supplies, he noted.

In that regard, Prime Minister Lawrence Wong has spoken to Australian Prime Minister Anthony Albanese.

Australia, which is one of the world’s top LNG exporters, and Singapore have jointly reaffirmed their commitment to support the flow of essential goods, said DPM Gan.

PM Wong has also spoken to New Zealand Prime Minister Christopher Luxon to reaffirm the two countries’ commitment to strengthen supply resilience and mitigate disruptions.

In October 2025, Singapore and New Zealand concluded an agreement on trade in essential supplies. DPM Gan said it was a timely framework to ensure the continued flow of critical goods between the countries.

DPM Gan said ASEAN foreign ministers and economic ministers have also discussed and underscored the importance of maintaining stable, open and reliable global energy supply chains, as well as minimising disruptions to the flow of essential supplies, including food.

Singapore and 10 other members of the Future of Investment and Trade Partnership (FIT-P) also issued a joint statement last week, reaffirming the importance of not imposing restrictive trade measures. These refer to export restrictions, tariffs and non-tariff barriers on essential goods.

The FIT-P statement was issued on March 31 by Costa Rica, Iceland, Liechtenstein, New Zealand, Norway, Panama, Rwanda, Singapore, Switzerland, the United Arab Emirates and Uruguay.

This comes as China banned the export of petrol, diesel and jet fuel in early March in response to the conflict. India has imposed extra duties on exports.

Meanwhile, some media reports suggest the US might impose a ban on refined fuel exports. However, the US did support a recent Group of Seven call for no export bans.

“We will strengthen our resilience by building up inventories and diversifying our sources of supply, but Singapore will always remain dependent on imports for our supplies,” DPM Gan said.

“It is therefore critical that we continue to strengthen our partnerships with like-minded countries, and uphold an open and rules-based trading system,” he added. “We must foster the free flow of energy and goods as far as possible.”