FEATURE ANALYSIS | GEOPOLITICS & ECONOMICS
By Feature Desk | 23 February 2026
On a Saturday morning in mid-February, oil traders in Singapore’s gleaming towers along Shenton Way were already at their desks long before the city’s hawker centres had begun serving their first bowls of bak chor mee. Across the screens in front of them, a single number kept climbing: Brent crude, pushing past USD 70 per barrel for the first time since late January, driven upward by footage of Iranian Revolutionary Guard speedboats conducting live-fire drills within the Strait of Hormuz — the narrow chokepoint through which roughly one-fifth of the world’s oil supply flows each day.
The proximate cause was, as it so often is, Iran. But in February 2026, the country is facing not one crisis but a convergence of three: a domestic uprising that has claimed thousands of lives and rattled the Islamic Republic’s clerical foundations; an accelerating nuclear standoff with the United States, now complicated by Donald Trump’s characteristically maximalist diplomacy; and an economy so ravaged by sanctions and mismanagement that annual inflation is careening toward 60 per cent. For Singapore — a city-state of 5.8 million people that imports every drop of its oil, derives much of its national income from refining and trading hydrocarbons, and sits at the cross-roads of the world’s most critical trade routes — the question is no longer whether these events will have consequences here. The question is how serious those consequences will be, and how long they will last.
“Singapore is probably the most structurally exposed developed economy in the world to a Strait of Hormuz disruption. We import 100% of our energy, our port is Asia’s premier bunkering hub, and our airlines fly directly through the affected airspace.”
The Uprising and Its Strategic Context
The protests that began on 28 December 2025 were, in their origins, familiar. Iranians took to the streets in response to surging food prices, collapsing purchasing power, and the grinding daily humiliation of life under sanctions. The World Bank had projected, as recently as October 2025, that Iran’s economy would contract through both 2025 and 2026, with inflation surging toward 60 per cent annually. Venezuela’s collapse as a sanctions-busting partner — punctuated by the US seizure of the Bella 1 tanker carrying sanctioned oil in January 2026 — had further tightened the financial noose.
But by late January, the protests had metastasised into something far more threatening to the regime’s survival. Students at Sharif University of Technology, one of Iran’s most prestigious technical institutions, were holding aloft the tricolour flag of the Pahlavi monarchy — a symbol so charged in the Islamic Republic’s iconography that merely displaying it constitutes a form of political insurrection. The authorities acknowledge more than 3,000 deaths since the unrest began; HRANA, the US-based human rights monitoring agency, has documented over 7,000 killings, the majority of them protesters.
Trump’s response followed a recognisable pattern: early rhetorical support for the protesters, followed by a pivot to coercive nuclear diplomacy. His administration imposed a 25 per cent tariff on goods from any country doing business with Iran — a measure particularly aimed at constraining Chinese purchases of Iranian crude, which averaged roughly 1.7 million barrels per day in the first half of 2025. Simultaneously, the USS Gerald R. Ford carrier strike group was dispatched to the Gulf, representing one of the largest US forward deployments in the region since the 2003 invasion of Iraq.
Tehran’s counter-signalling was equally legible to anyone versed in the grammar of Middle Eastern brinkmanship: the Revolutionary Guards conducted live-fire exercises in the Strait of Hormuz in mid-February and announced plans for joint naval drills with Russia. The message was not subtle. Iran has not closed the Strait — doing so would mean direct conflict with the US Navy, and almost certainly with the GCC states whose oil wealth transits the chokepoint — but it has demonstrated the capability and the will to threaten it.
Why Singapore Is Uniquely Exposed
No city in the world sits more precisely at the intersection of all the vectors flowing from this crisis than Singapore. The reasons are structural and well understood by economists and policymakers here, though they bear repeating in the context of the current threat.
Singapore imports 100 per cent of its energy needs. Its economy processes and re-exports enormous volumes of refined petroleum products from its Jurong Island petrochemical complex — one of the world’s largest integrated petrochemical facilities, home to ExxonMobil, Shell, and dozens of other operators. Its port, PSA International, handles roughly 37 million TEUs annually and is Asia’s premier bunkering hub, meaning that ships refuelling here consume significant volumes of oil whose price is directly linked to Brent crude. And Singapore Airlines, consistently ranked among the world’s best carriers, operates a fleet whose economics are exquisitely sensitive to jet fuel prices — which move in lockstep with crude.
Beyond the energy dimension, Singapore’s geographic and economic position creates a second layer of vulnerability. Approximately 84 per cent of the crude oil transiting the Strait of Hormuz in 2024 was bound for Asian markets. The four largest recipients — China, India, Japan, and South Korea — collectively accounted for 69 per cent of all flows through the strait. Disruption to that supply does not merely raise prices in Singapore; it raises prices for Singapore’s most important trading partners simultaneously, creating a compressive effect that amplifies both cost pressures and demand weakness at once.
“If the Strait closes even partially, you’re not just dealing with higher oil prices. You’re dealing with every single one of Singapore’s major trade partners facing an energy shock at the same time.”
The Houthi dimension adds a further complication that has particular resonance in this city. After their successful campaign to disrupt shipping through the Bab al-Mandab Strait during 2023 and 2024 — a campaign that significantly inflated global shipping costs and contributed to Singapore’s import price pressures — the Yemeni group remains active and has publicly signalled readiness to re-escalate. A coordinated pressure campaign on both chokepoints simultaneously would represent an extraordinary stress test for global supply chains, with Singapore’s port and refining complex caught squarely in the crossfire.
Oil Prices, Inflation, and the MAS Dilemma
On 19 February 2026, the day US-Iran tensions pushed WTI to approximately USD 66.55 per barrel — a six-month high — Singapore’s equity markets moved in broadly predictable ways. The Straits Times Index posted mild losses; aviation stocks weakened; energy names saw modest gains. The reaction, calibrated and relatively contained, reflected a market still pricing the baseline scenario: sustained tension without direct military conflict.
But the monetary policy implications are more complex, and more consequential, than the day’s equity moves might suggest. The Monetary Authority of Singapore entered 2026 having already raised its core inflation forecast to 1.0–2.0 per cent for the year, up from the 0.5–1.5 per cent projected in its October 2025 monetary policy statement. The revision was driven principally by healthcare, education, and food prices — not yet energy. Its January 2026 monetary policy statement explicitly flagged that supply shocks from geopolitical developments risk lifting imported costs, a concern that now looks less theoretical than it did when the statement was drafted.
The S$NEER policy band — the MAS’s primary instrument, which manages the Singapore dollar’s value against a trade-weighted basket of currencies — remains on its prevailing modest appreciation slope. This is appropriate in a scenario of contained tension: a stronger Singapore dollar reduces import costs and dampens inflationary pass-through. But if oil prices were to sustain above USD 80 per barrel for an extended period — BloombergNEF’s bear case scenario — the arithmetic of Singapore’s energy bill would begin to overwhelm the currency’s protective effect, and the MAS would face a more difficult choice between supporting growth and containing price stability.
MUFG Research’s most recent assessment of MAS policy concludes that the April 2026 monetary policy review is likely to result in another hold, but that only a sharp deterioration in global growth, a significant reversal in AI-related capital expenditure, or an unexpected inflation shock would materially shift the policy calculus. An Iran conflict that drives Brent to USD 90 or above would qualify, without question, as an unexpected inflation shock.
Sectors Under Stress
For Singapore Airlines, the exposure is direct and material. Jet fuel typically represents 25–30 per cent of an airline’s operating costs, and while SIA employs sophisticated hedging programmes to smooth price volatility, these instruments provide protection over defined time horizons. A sustained energy shock extending through the second half of 2026 would erode the hedge book’s coverage ratios and force the airline to absorb significantly higher costs at a time when its trans-Asian routes traverse airspace that could become contested or re-routed in a military escalation scenario.
PSA International faces a more nuanced picture. Higher bunker fuel costs raise the operating expenses of vessels calling at Singapore, which can in some respects make Singapore relatively more expensive as a hub. But disruption to Middle Eastern shipping lanes also forces route diversifications that have historically increased traffic through Singapore’s port — as occurred during the Red Sea crisis of 2023–24, when vessels avoiding the Suez Canal re-routed around the Cape of Good Hope, dramatically increasing call times and demand for bunker services in Asia.
Jurong Island’s petrochemical complex is both a beneficiary and a victim of price volatility. Higher crude prices increase the value of refinery output, improving crack spreads for operators who have already purchased feedstocks. But sustained supply uncertainty raises input costs for the downstream chemical producers that depend on naphtha and other petroleum derivatives as feedstocks for plastics, pharmaceuticals, and industrial chemicals. Several of Singapore’s largest chemical producers have indicated privately that they are modelling scenarios in which key feedstock contracts become impossible to price reliably if Hormuz disruption persists beyond 60 days.
For ordinary Singaporean households, the transmission mechanism is less spectacular but more pervasive. Electricity tariffs, which are benchmarked to natural gas prices, would rise. The cost of private transport would increase. Food prices — always sensitive to energy costs given the logistics-intensive nature of Singapore’s food import supply chain — would face upward pressure. The government’s U-Save rebate scheme and cost-of-living support measures would likely be activated, as they have been during previous energy shock episodes, but their capacity to offset a sustained USD 80-100 per barrel environment is limited.
The Geopolitical Tightrope
Singapore’s formal diplomatic position on the US-Iran standoff reflects the careful ambiguity that has long characterised its foreign policy. The city-state maintains formal diplomatic relations with Iran, though these are not warm; it has consistently advocated for a rules-based international order and opposed unilateral military action. It has also, with equal consistency, maintained its defence relationship with the United States, which remains the ultimate guarantor of freedom of navigation in the waters through which Singapore’s trade flows.
This position becomes considerably more fraught if Trump follows through on military threats against Iran’s nuclear programme. A strike on Iranian nuclear facilities — Columbia University’s Center on Global Energy Policy estimates a 65 per cent probability of US military action by end of April 2026 — would not merely be a diplomatic crisis for Singapore. It would be an economic one. Iranian retaliation, whether through Strait interdiction, attacks on Gulf Arab energy infrastructure (as occurred at Abqaiq in 2019), or Houthi re-activation in the Red Sea, would trigger precisely the supply shock that Singapore’s policymakers have been quietly modelling since January.
China’s role adds another layer of complexity specific to Singapore. Beijing has continued to purchase most of Iran’s oil exports despite US sanctions pressure, and Trump’s 25 per cent tariff on Iran’s trading partners is explicitly designed to constrain those flows. Any escalation that further disrupts China’s energy supply could amplify the economic slowdown already projected for China in 2026, with direct consequences for Singapore’s export-oriented manufacturing and financial services sectors, both of which are heavily dependent on Chinese demand.
“The nightmare scenario is not just Hormuz. It is Hormuz plus Bab al-Mandab, simultaneously, with a China slowdown on top. That is a scenario for which no hedge book is sufficient.”
What Singapore Is Doing — and What It Should Do
The Energy Market Authority has been proactive in recent weeks, accelerating negotiations for spot LNG cargo contracts at fixed rates — a sensible precautionary measure given Singapore’s dependence on piped gas from Malaysia and Indonesia, both of which transit sea lanes that could be affected by a wider regional conflict. PSA management has reportedly extended its bunker fuel hedging programmes. The government’s strategic petroleum reserve, held in Jurong Island storage facilities, provides a modest buffer against short-term supply disruption, though its capacity would be insufficient to sustain Singapore’s energy-intensive economy through a prolonged Hormuz closure.
Longer-term structural responses — accelerating rooftop solar deployment, expanding strategic reserve storage, progressing the ASEAN power grid interconnection — are already embedded in Singapore’s energy security roadmap. The current crisis has added urgency to these timelines but has not fundamentally altered them.
What the situation most urgently requires — and what Singapore’s government has historically been good at, even if it resists saying so publicly — is frank assessment of the scenarios in which normal macroeconomic stabilisation tools are insufficient. The MAS’s exchange rate framework is elegant and effective in a world of moderate supply shocks. It is less well-suited to the kind of demand destruction and simultaneous supply shock that a serious Hormuz disruption would produce. Fiscal tools — rebates, subsidies, emergency support for energy-intensive industries — would need to be deployed at scale and speed that the existing frameworks may not fully accommodate.
Three Scenarios for the City-State
Analysts tracking the situation have coalesced around three broad scenario families. In the most benign, US-Iran negotiations produce a diplomatic framework — not necessarily a complete nuclear deal, but sufficient de-escalation to return oil prices to the USD 60-70 range — within the next two to three months. Singapore absorbs a manageable inflation uptick, the MAS holds steady at its April review, and the episode becomes another data point in the ongoing story of geopolitical risk management for a small, open economy.
In the intermediate scenario — which carries roughly a 35 per cent probability in most analyst models — tensions persist without direct military conflict through the remainder of 2026. Oil sustains above USD 70-80 per barrel. Singapore faces sustained import cost inflation that erodes the purchasing power of lower-income households, pressures airline and shipping margins, and forces the MAS to reconsider its easing trajectory. Core CPI pushes toward the upper bound of the 1.0-2.0 per cent forecast range. The economy remains resilient — supported by the AI-driven technology investment upcycle and robust financial services activity — but the quality of growth deteriorates.
In the tail risk scenario — a 15 per cent probability that no policymaker can afford to dismiss — active military conflict disrupts Strait of Hormuz traffic, Brent crude spikes above USD 100 per barrel within days, and Singapore faces the most severe external shock since the 2008 financial crisis. The government’s response toolkit would be tested in ways that go well beyond normal monetary and fiscal stabilisation. Whether it is adequate is a question that, mercifully, has not yet needed to be answered — but that Singapore’s economic architects are, with characteristic quiet competence, actively working through.
Iran is a country of 89 million people under extraordinary stress, governed by a regime that is simultaneously threatened from within and pressured from without. Its students are holding up a flag that was last flown freely before any of them were born. The outcome of this crisis — whether it ends in a negotiated nuclear framework, a managed authoritarian crackdown, or a military confrontation — will be decided far from the trading floors of Shenton Way. But its economic consequences will arrive here with the precision and indifference of market forces, carried on the same sea lanes that have made this small island one of the most prosperous places on earth.
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