Geopolitical Risk Analysis | February 2026
Executive Summary
As of February 2026, the United States and the Islamic Republic of Iran are in an advanced state of geopolitical confrontation over Tehran’s nuclear programme, with diplomatic channels effectively exhausted and military escalation regarded by regional actors as the more probable near-term outcome. This case study examines the structural drivers of the crisis, the collapse of diplomatic efforts, the military posture of both parties, and the strategic outlook across multiple scenarios. It then assesses the multi-dimensional implications for Singapore as a small, open, trade-dependent city-state with significant exposure to global energy markets, maritime trade routes, and international financial stability.
Key Findings
Diplomatic talks have stalled on three irreconcilable positions: uranium enrichment on Iranian soil, ballistic missile programmes, and sanctions relief. The US has assembled one of its largest Middle East military deployments since the 2003 Iraq War. Israel regards confrontation as near-inevitable and is preparing for possible joint military action with the US. Strait of Hormuz disruption poses the most acute near-term risk to Singapore’s energy security. Singapore’s trade exposure, port operations, financial market stability, and diplomatic positioning are all materially at risk.
- Background and Historical Context
1.1 The Longstanding Nuclear Dispute
Iran’s nuclear programme has been a source of international contention since the early 2000s, when the IAEA revealed undisclosed enrichment activities at Natanz and Arak. The dispute reflects a fundamental tension: Tehran insists on its sovereign right to a civilian nuclear programme under the Non-Proliferation Treaty, while the US, Israel, and the broader Western alliance maintain that Iran’s enrichment capacity is inconsistent with peaceful intent and constitutes a latent nuclear weapons capability.
The 2015 Joint Comprehensive Plan of Action (JCPOA), negotiated under the Obama administration, temporarily constrained Iran’s enrichment in exchange for phased sanctions relief. Its collapse following the US’s unilateral withdrawal in 2018 set in motion a cascading cycle of Iranian non-compliance, punishing ‘maximum pressure’ sanctions, and regional proxy escalations that continues to the present.
1.2 The Current Flashpoint (2025–2026)
Following US and Israeli airstrikes on Iranian military and nuclear facilities in June 2025, Tehran intensified uranium enrichment and signalled its capacity to weaponise at short notice. Renewed diplomacy under Omani mediation produced two rounds of inconclusive talks in Geneva. By February 2026, both sides have publicly calcified around incompatible red lines, and the prospect of near-term military confrontation has become the working assumption of Gulf states, European capitals, and Israeli intelligence. - The Anatomy of the Diplomatic Breakdown
2.1 Irreconcilable Red Lines
The fundamental obstacle to a negotiated settlement is structural rather than procedural. Each party has publicly committed to positions that are mutually exclusive, creating a bargaining environment in which any compromise would require a politically costly reversal.
United States’ Core Demands Iran’s Core Positions
Zero uranium enrichment on Iranian soil Enrichment is a sovereign right under the NPT
Full dismantlement of ballistic missile programme Missiles are non-negotiable and not on the table
Comprehensive, intrusive IAEA monitoring Willing to extend IAEA access as goodwill gesture only
Cessation of support for regional proxy militias Proxy network linked to regional influence; resisted
Permanent, verifiable nuclear dismantlement Temporary concessions only; capability must be retained
2.2 The Envelope Incident and the Collapse of Goodwill
A defining symptom of the breakdown occurred when Omani mediators delivered a US envelope to Iranian Foreign Minister Abbas Araqchi containing missile-related proposals during the February 2026 Geneva talks. Araqchi refused to open the envelope and returned it to the Omani intermediaries. This act signalled that negotiations had moved beyond substantive disagreement into performative intransigence—a classical marker of a process approaching terminal failure.
2.3 Trump’s Structural Entrapment
A critical dimension of the standoff is the asymmetric political cost structure facing Washington. President Trump has assembled one of the largest US military deployments to the Middle East since 2003, including aircraft carriers, warships, and advanced air assets. Former US diplomat Alan Eyre articulated the dilemma precisely: a modest or inconclusive agreement would be politically untenable given the military build-up, while the scale of deployment has created escalatory momentum that is difficult to arrest. Trump is, in strategic terms, ‘committed’ in the Schelling sense—his credible threat of military action has increased, but so has his vulnerability to a face-saving trap.
- Military Dynamics and Escalation Pathways
3.1 US Military Posture
The US deployment in the Gulf enables simultaneous offensive operations against Iranian territory and defensive coverage of US bases, Israeli territory, and GCC partners. A senior US official confirmed that all US forces will not be in place until mid-March 2026—a relevant constraint on Trump’s 10-to-15-day ultimatum issued on 19 February 2026.
3.2 Israeli Planning and the Joint Action Scenario
Israel’s government has concluded that the diplomatic gap is unbridgeable and is preparing for possible joint military action with the US—which would be the second such operation within a year following the June 2025 airstrikes. Two Israeli officials told Reuters that the chances of near-term military escalation are high. Israeli officials regard Iranian miscalculation of US resolve as a dangerous factor that increases the risk of unintended escalation.
3.3 Probable Strike Sequence
Defence analysts assessing current US Gulf activities outline a probable sequence should diplomacy fail: initial suppression of Iranian air defences, followed by strikes on the IRGC Navy—the force responsible for tanker harassment and Hormuz closure threats—then strikes on enrichment facilities, missile infrastructure, and potentially command-and-control nodes. The ambiguity of US strategic objectives (degradation, deterrence, or regime change) remains a significant concern for European and Arab partners.
Strategic Ambiguity: What Is Washington’s Endgame?
European and Arab officials have expressed significant concern about the absence of a clearly articulated US strategic objective. The range of possible aims—degrading nuclear capability, deterring further escalation, or pursuing regime change—carry vastly different implications for the scale, duration, and regional consequences of any military action. Absent clarity, regional partners cannot calibrate their own responses, increasing the risk of uncoordinated escalation.
3.4 Iranian Response Capabilities
Iran’s deterrent posture rests on several pillars: its IRGC Navy’s ability to threaten Hormuz closure; its network of regional proxy forces across Iraq, Syria, Lebanon, Yemen, and Gaza; its ballistic and cruise missile arsenal capable of reaching US bases and Israeli territory; and cyber capabilities deployed against energy and financial infrastructure. Tehran has publicly threatened retaliation against US regional bases if attacked.
- Strategic Outlook and Scenario Analysis
On the basis of available evidence—assessments of Israeli officials, Gulf state governments, and European diplomatic sources—the balance of probability has shifted decisively away from a negotiated settlement and toward some form of military engagement. The precise form, timing, and intensity remain uncertain, and a last-minute Iranian concession cannot be entirely ruled out.
Scenario Probability Estimate Primary Trigger
Negotiated Settlement Low (15–20%) Khamenei authorises enrichment concession
Limited US/Israeli Strike High (45–55%) Iran does not respond to final ultimatum
Sustained Air Campaign Moderate (20–25%) Iran retaliates; US escalates further
Full Regional Conflict Low–Moderate (10–15%) Hormuz closure; proxy activation across theatre
Prolonged Stalemate Very Low (5–10%) Both sides step back without a deal
4.1 Why Regime Change Is an Unlikely Outcome
Several European and regional officials have cautioned against assuming that military strikes would precipitate regime change in Tehran. The Islamic Republic retains a formidable coercive apparatus in the IRGC and Basij militia, and there is no credible, organised political opposition capable of filling a governance vacuum. Historical precedent—including the consolidation of Iranian national cohesion during the 1980–1988 Iran–Iraq War—suggests that external military action may strengthen rather than destabilise the clerical establishment’s domestic authority.
- Implications for Singapore
Singapore’s strategic exposure to the US–Iran crisis is multidimensional. As a city-state with no natural resources, near-total dependence on imported energy, a port handling approximately one-eighth of global container throughput, and an economy deeply integrated into global trade and financial networks, Singapore faces potentially significant consequences across several domains.
5.1 Energy Security and Strait of Hormuz Exposure
The Strait of Hormuz is the transit point for approximately one-fifth of global oil supply and a substantial proportion of LNG exports from Qatar and the broader Gulf region. Singapore imports a significant share of its crude oil and natural gas from Gulf suppliers, processed through its world-class refining complex at Jurong Island. A sustained disruption or closure of the Strait—through Iranian interdiction of tanker traffic, naval mining, or retaliatory strikes on Saudi and UAE energy infrastructure—would produce immediate supply shocks, drive sharp increases in global oil prices, and elevate LNG spot prices in ways that could materially stress Singapore’s power generation economics.
Energy Risk Factor Singapore’s Exposure
Hormuz closure or tanker disruption Import price spike; refinery feedstock shortage at Jurong Island
Gulf LNG supply disruption Higher electricity generation costs; reduced industrial competitiveness
Oil price surge (Brent above USD 120/bbl) Elevated transport, manufacturing and utility costs economy-wide
War-risk insurance surcharges Higher freight costs; reduced competitiveness of entrepot trade
5.2 Trade and Port Operations
Singapore’s Port of Singapore handles approximately 37 million TEUs annually and is one of the world’s busiest transshipment hubs. Military conflict in the Gulf would generate cascading effects: vessels rerouting around conflict zones, elevated war-risk insurance premiums, and potential withdrawal of shipping capacity from Gulf routes. These effects would ripple through Singapore’s port throughput, bunkering revenues, ship repair sector, and maritime services cluster—all core components of Singapore’s economic base.
5.3 Financial Market and Currency Implications
Singapore’s financial centre, ranked among the world’s top five for foreign exchange trading and wealth management, is exposed to the global risk-off dynamics that a major Middle East conflict would precipitate. Historical precedent from the Gulf War (1990–1991) and the 2003 Iraq War demonstrates that such shocks trigger equity market volatility, safe-haven flows into the US dollar and gold, and credit spread widening. For Singapore specifically, an escalation scenario would likely produce MAS S$NEER appreciation pressure, tightening of global credit conditions affecting Singapore’s real estate sector, and potential capital outflows from regional equity and bond markets that Singapore’s financial sector intermediates.
5.4 Regional Stability and ASEAN Diplomatic Calculus
Singapore’s foreign policy has consistently emphasised multilateralism, rules-based international order, and the inviolability of international law—principles that a pre-emptive US-Israeli military strike against Iran would significantly complicate. Singapore would face pressure to articulate a position on the legality and proportionality of any strike at a moment when its relationships with Washington (a critical security and trade partner) and the broader Muslim world (relevant to its domestic social compact and its ties with Malaysia and Indonesia) are simultaneously implicated.
ASEAN’s institutional response would likely be paralysed by the bloc’s consensus requirement and the divergent national interests of its members. Singapore would therefore manage its diplomatic response largely autonomously, consistent with its longstanding practice of calibrated independent positioning on sensitive geopolitical questions.
5.5 Cost of Living and Business Operations
Beyond macroeconomic and geopolitical considerations, a sustained conflict scenario would affect Singapore at the micro level. Higher fuel and energy prices would feed through to cost-of-living pressures for households and input cost pressures for businesses. Singaporean companies with operations or supply-chain dependencies in the Gulf—including construction, logistics, and petrochemical sectors—would face operational disruptions. The aviation and tourism sectors could also be affected by elevated global security anxiety.
Domain Mechanism of Impact Severity (Near-Term)
Energy prices Hormuz disruption; global oil price spike High
Port throughput Rerouting; war-risk premiums; capacity withdrawal Moderate–High
Financial markets Risk-off; equity volatility; credit tightening Moderate–High
Refining industry Feedstock disruption; margin compression Moderate
Diplomatic positioning Pressure to take sides; ASEAN paralysis Moderate
Cost of living Fuel and utility price pass-through Moderate
Tourism and aviation Regional travel uncertainty; jet fuel costs Low–Moderate
- Policy Considerations for Singapore
6.1 Energy Diversification
The crisis underscores the urgency of Singapore’s existing energy diversification agenda. Expanding LNG import relationships with non-Gulf suppliers (Australia, the United States, Mozambique), accelerating development of regional power interconnection under the ASEAN Power Grid framework, and advancing solar and hydrogen deployment domestically would reduce vulnerability to Gulf supply shocks over the medium term.
6.2 Strategic Petroleum Reserve Adequacy
Singapore should review the adequacy of its strategic petroleum reserves in light of the Hormuz disruption scenario. Bilateral reserve-sharing arrangements with partners such as Japan and coordination with IEA emergency response mechanisms would provide additional buffers against sustained supply disruptions.
6.3 Financial Sector Resilience
MAS should monitor capital flow dynamics and stand ready to deploy its substantial foreign exchange reserve toolkit to manage excessive S$NEER volatility. Singapore’s banking sector, which maintains robust capital adequacy ratios, is well-positioned to absorb moderate credit market stress, but scenario-based stress-testing against a sustained oil price shock above USD 130 per barrel would be prudent.
6.4 Diplomatic Positioning
Singapore’s foreign policy tradition of principled pragmatism—maintaining close ties with both the US and major Muslim-majority states, supporting international law while acknowledging great power realities—will be severely tested. The government would likely issue a carefully calibrated statement emphasising de-escalation, compliance with UN Security Council processes, and the protection of civilian nuclear infrastructure under international law, while avoiding direct characterisation of military action as unlawful absent a clear UNSC mandate. - Conclusion
The US–Iran nuclear standoff of February 2026 represents the most acute risk of inter-state military conflict in the Middle East since the 2003 Iraq War, with a probability distribution that has shifted decisively toward armed escalation. The structural factors driving this outcome—irreconcilable red lines, Trump’s political commitment to his military build-up, Iranian miscalculation of US resolve, and Israel’s conviction that the diplomatic window is closed—are largely self-reinforcing and resistant to last-minute intervention.
For Singapore, the crisis crystallises existing vulnerabilities in energy security, maritime trade, and financial stability that the city-state’s policy apparatus must urgently address. It simultaneously poses a sophisticated diplomatic challenge requiring Singapore to navigate between its security partnership with Washington, its commitments to international law, and its relationships with the Muslim world. The management of this crisis will be a significant test of Singapore’s capacity for strategic autonomy in an era of intensifying great power competition.
Concluding Assessment
The most immediate risks for Singapore are an oil price spike above USD 120/barrel triggered by Hormuz disruption and the associated pass-through to energy and transport costs. The medium-term risks—port throughput compression, financial market volatility, and diplomatic repositioning pressure—are material but manageable given Singapore’s institutional strength and reserve adequacy. The long-term risk is the acceleration of a more fragmented, less rules-based international order in which Singapore’s traditional multilateral toolkit becomes less effective.
References and Sources
Reuters / The Straits Times. (21 February 2026). “US and Iran slide towards conflict as military build-up eclipses talks.” SPH Media Limited.
International Atomic Energy Agency (IAEA). (2026). Reports on Iranian nuclear activities and safeguards compliance. Vienna: IAEA Secretariat.
Eyre, A. (2026). Commentary on US–Iran impasse. Cited in Reuters reporting, 21 February 2026.
Makovsky, D. (2026). Analysis of mutual deterrence calculus. The Washington Institute for Near East Policy.
Des Roches, D. (2026). Assessment of US military posture and strike scenarios. Defence analyst commentary.
Schelling, T. (1960). The Strategy of Conflict. Cambridge: Harvard University Press.
International Energy Agency (IEA). (2025). World Energy Outlook 2025. Paris: IEA Publications.
Monetary Authority of Singapore (MAS). (2025). Financial Stability Review 2025. Singapore: MAS.
Ministry of Trade and Industry, Singapore (MTI). (2025). Annual Economic Survey 2025. Singapore: MTI.