CASE STUDY
Geopolitical Escalation, Regional Fallout, and Implications for Singapore
Date of Incident: 28 February 2026
Classification: Academic / Policy Analysis
1. Executive Summary
On 28 February 2026, Israel and the United States jointly launched coordinated military strikes against Iran, targeting its leadership infrastructure and key strategic assets. Iran retaliated swiftly, striking targets across the broader Middle East — including cities in Israel, Doha (Qatar), Kuwait, Bahrain, and the UAE. This escalation follows a preceding 12-day air war in June 2025 and repeated international warnings over Iran’s nuclear and ballistic missile programmes.
This case study examines the background and triggers of the conflict, analyses the immediate and medium-term regional and global fallout, and assesses the specific implications for Singapore — a small, trade-dependent, open economy uniquely vulnerable to geopolitical shocks. It also puts forward a set of policy solutions and strategic recommendations for Singapore’s government, businesses, and citizens.
2. Background & Context
2.1 Historical Trajectory
Iran–Israel–US tensions have a decades-long history, rooted in Iran’s nuclear ambitions, its support for Hezbollah and Hamas, and its declared hostility toward Israel. Successive US administrations have oscillated between diplomacy (the 2015 JCPOA) and maximum pressure (the 2018 US withdrawal, reimposition of sanctions).
By 2025, the situation had deteriorated significantly. Iran’s uranium enrichment approached weapons-grade levels, and Iran-backed proxy forces had conducted repeated attacks on US military installations and Israeli territory. In June 2025, a 12-day air war between Israel and Iran marked the first direct, sustained exchange of fire between the two nations.
2.2 Immediate Triggers (February 2026)
- Failed diplomatic negotiations over Iran’s nuclear programme in early 2026
- Mass protests within Iran against the Islamic Republic — met with violent crackdown — destabilised the regime internally
- US assembled a substantial military force in the Middle East: aircraft carriers, destroyers, missile defence systems, and offensive strike platforms
- Israel and US issued final warnings to Iran over its ballistic missile programme, which were not heeded
2.3 The Attack and Immediate Retaliation
On 28 February 2026, Israel and the US jointly struck Tehran and other Iranian targets, reportedly including leadership compounds and critical defence infrastructure. Iran responded almost immediately with retaliatory missile and drone strikes across the Middle East, hitting:
- Israel (multiple cities)
- Doha, Qatar — host to the US Central Command forward headquarters
- Kuwait — a key US logistics hub
- Bahrain — home to the US Fifth Fleet
- The United Arab Emirates — a key global financial and logistics hub
As Senior Minister Lee Hsien Loong noted on the day of the strikes: “You can see when the war will start. It is very hard to tell how the war will end.”
3. Regional Outlook
3.1 Scenario Matrix
The conflict trajectory can be mapped across three broad scenarios:
| Scenario | Conditions | Probability (Near-Term) | Energy Price Impact |
| Contained Conflict | Ceasefire within weeks; Iran accepts limited damage; US/Israel halt further strikes | Moderate | +15–25% oil spike, partial recovery |
| Prolonged War | Iran activates proxy networks (Hezbollah, Houthis, Iraq militias); sustained tit-for-tat strikes | Moderate–High | +40–60% sustained premium |
| Regional Conflagration | Iran closes Strait of Hormuz; multiple state actors drawn in; US ground commitment | Lower (but catastrophic) | Structural energy shock; possible $200/barrel |
3.2 The Strait of Hormuz Risk
Approximately 20% of global oil supply and 25–30% of global LNG transits the Strait of Hormuz daily. Iran has previously threatened to close the strait in periods of acute tension. Any disruption — even temporary — would trigger immediate supply shocks disproportionate to actual volume lost, due to market panic and insurance cost spikes.
3.3 Gulf State Vulnerability
Iran’s strikes on Bahrain, Kuwait, UAE, and Qatar represent a dramatic escalation beyond previous proxy conflicts. These nations host critical US military infrastructure, global financial services, and logistics operations. Even limited damage would:
- Disrupt global insurance and shipping lanes
- Destabilise Gulf Cooperation Council (GCC) financial markets
- Trigger emergency evacuations of expatriate workers (over 90% of UAE’s workforce is foreign-born)
- Threaten LNG supply chains from Qatar — the world’s largest LNG exporter
4. Global Economic Impact
4.1 Energy Markets
Energy markets will experience immediate and severe disruption. Brent crude and natural gas prices will spike on supply risk premiums. The inflationary pass-through to transport, manufacturing, and food production will be rapid and broad-based.
| Commodity | Baseline (Pre-Strike) | Short-Term Impact | Medium-Term Risk |
| Brent Crude Oil | ~$82/barrel | +20–40% immediate spike | Sustained elevation if Hormuz threatened |
| Natural Gas (LNG) | ~$12–14/MMBtu (Asia) | +25–50% | Qatar supply disruption = structural shortage |
| Aviation Fuel | Elevated | Airspace closures = further surge | Operational cost crisis for airlines |
| Shipping Rates | Moderating post-2024 | +30–60% war risk premium | Route diversions add cost and time |
4.2 Trade and Investment Climate
Beyond energy, the broader geopolitical shock compounds the already fragile global trade environment. In early 2026, the US Supreme Court ruled most of the Trump administration’s 2025 tariffs illegal. The administration’s immediate response — reimposing a 10% flat tariff on all countries, briefly raised to 15% — already signals a volatile and unpredictable US trade posture.
Combined with a Middle East at war, the effects on global trade and investment will include:
- Heightened business uncertainty reducing capital expenditure and long-term investment decisions
- Supply chain re-routing adding cost and delay to goods flows through the Middle East and Red Sea
- Risk-off investor sentiment reducing flows to emerging and frontier markets
- Potential US dollar appreciation (safe-haven demand) squeezing dollar-indebted developing economies
5. Impact on Singapore
5.1 Macro-Economic Exposure
Singapore is a canonical small, open economy. Its GDP is approximately 170–180% of trade-to-GDP ratio — among the highest in the world. It serves as a global hub for finance, shipping, logistics, and petrochemicals. This makes it structurally more sensitive to geopolitical supply shocks than most comparably-sized economies.
| Exposure Channel | Mechanism | Severity |
| Energy Costs | Singapore imports virtually all energy; oil and gas price spikes pass through directly to utilities, transport, and manufacturing | High |
| Shipping & Logistics | Singapore is the world’s 2nd busiest port; rerouted vessels, insurance surcharges, and delays will dampen throughput | High |
| Petrochemical Sector | Jurong Island refinery complex depends on Middle East crude; feedstock costs rise sharply | High |
| Aviation | Changi Airport — a major hub — faces airspace closures, cancellations, route disruptions in the region | High |
| Tourism | Regional uncertainty reduces visitor arrivals from Middle East; business travel contracts | Moderate |
| Financial Markets | SGX exposed to regional risk-off; MAS will monitor capital flows and SGD stability carefully | Moderate |
| Trade Finance | Singapore banks active in trade finance; disruption to Middle East trade will stress portfolios | Moderate |
5.2 Cost of Living
The inflationary pass-through will be felt acutely by Singaporean households. Energy, transport, and food costs will rise. The Government’s Budget 2026 — unveiled by PM Lawrence Wong on 12 February 2026 — provides timely relief through:
- Cost-of-Living Special Payment of $200–$400 for all adult Singaporeans
- $500 in Community Development Council (CDC) vouchers per household
- More generous U-Save utility rebates
- Ongoing CPF top-ups and S&CC rebates for eligible households
While these measures will provide short-term cushioning, a protracted conflict could require additional rounds of support as inflationary pressures persist.
5.3 Workforce and Businesses
Singapore businesses — particularly in logistics, marine, energy, and aviation — face immediate operational and cost challenges. Small and medium-sized enterprises (SMEs), which form the backbone of Singapore’s domestic economy, are particularly vulnerable to rising energy and transport input costs.
The Government has responded with the Enterprise Innovation Scheme to support AI adoption and productivity improvements. Free AI tool subscriptions are available to Singaporeans undertaking selected training courses, underpinning the workforce’s longer-term adaptability.
5.4 Security and Diplomatic Implications
Singapore maintains a carefully calibrated foreign policy of balanced engagement with all major powers and does not take sides in major power conflicts. The Israel–Iran war presents diplomatic sensitivities:
- Singapore has a significant Muslim-majority Malay community and must manage domestic communal sensitivities
- Singapore’s close US alliance relationship creates implicit alignment pressures
- Maintaining the confidence and trade relationships of Gulf states — particularly the UAE and Qatar — is economically vital
- The safety of Singaporean citizens in the Middle East requires immediate consular coordination
6. Solutions and Strategic Recommendations
6.1 Government Policy Response
Immediate (0–3 months)
- Activate emergency energy security protocols; diversify crude oil and LNG procurement to non-Middle Eastern suppliers (including Australia, US, Malaysia, Indonesia)
- Issue formal travel advisories and mobilise consular support for Singaporeans in affected countries
- Co-ordinate with MAS to monitor SGD stability and intervene if capital flows become disorderly
- Engage the Gulf states diplomatically at ministerial level to signal Singapore’s continued commitment to bilateral economic relationships
- Work with the port authority (MPA) to manage shipping disruptions and ensure Changi remains viable through route diversifications
Medium-Term (3–18 months)
- Accelerate strategic petroleum reserve (SPR) buildout to extend coverage from the current approximately 90 days toward 120+ days
- Deepen energy mix diversification: expand solar, invest in hydrogen import infrastructure, reduce dependence on any single fuel or supplier
- Review and strengthen supply chain resilience frameworks for critical industries (petrochemicals, pharmaceuticals, food)
- Introduce targeted business relief for SMEs in most-affected sectors (logistics, transport, marine)
- Scale AI and digital upskilling programmes to accelerate productivity gains that offset rising input costs
Long-Term (18 months+)
- Position Singapore as a trusted neutral facilitator for post-conflict reconstruction finance and diplomacy
- Institutionalise geopolitical risk scenario planning within national economic forecasting frameworks
- Strengthen ASEAN-level co-ordination on energy security and supply chain resilience
6.2 Business Sector Recommendations
| Sector | Key Risk | Recommended Action |
| Logistics / Shipping | Route disruptions, war-risk premiums | Renegotiate insurance; explore Cape of Good Hope routing; hedge freight costs |
| Petrochemicals | Feedstock price surge | Diversify crude sources; increase inventory buffers; review long-term supplier contracts |
| Aviation | Airspace closures, fuel costs | Deploy fuel hedging strategies; review Middle East route viability; activate contingency schedules |
| Financial Services | Market volatility, trade finance stress | Stress-test portfolios; increase provisioning for Middle East exposures; rebalance to lower-risk assets |
| Retail / F&B | Import cost inflation | Diversify suppliers; absorb short-term cost vs. pass-through judiciously; consider bulk purchasing |
| Tourism / Hospitality | Reduced arrivals, cancellations | Pivot marketing to non-affected markets (South/East Asia, Europe); develop domestic tourism packages |
6.3 Individual / Household Recommendations
- Make full use of Government support schemes (U-Save, CDC vouchers, Cost-of-Living Payments)
- Reduce unnecessary energy consumption to mitigate rising utility costs
- Avoid non-essential travel to the Middle East and surrounding regions until the security situation stabilises
- Invest in skills upgrading, particularly AI and digital literacy, through SkillsFuture and other subsidised programmes
- Review personal financial resilience: emergency savings, insurance coverage, and investment portfolio exposure to affected sectors
7. Conclusion
The Israel–US strike on Iran on 28 February 2026, and Iran’s immediate retaliation across the broader Middle East, represents the most significant military escalation in the region since the 2003 Iraq War. Its ramifications — for energy markets, global trade, Gulf state stability, and the broader architecture of international order — are profound and far from resolved.
For Singapore, the conflict is a vivid reminder of the structural vulnerability of small, open economies to geopolitical shocks they do not cause and cannot control. The city-state’s remarkable 2025 economic performance — 5% GDP growth, rising wages, moderating inflation — provides some cushion. But as SM Lee cautioned, the good times cannot be taken for granted.
Singapore’s response must be threefold: resilient in immediate crisis management, adaptive in medium-term economic reconfiguration, and strategic in long-term positioning as a trusted, neutral node in an increasingly fragmented world order. The foundations — strong institutions, deep reserves, a skilled workforce, and a reputation for reliability — remain robust. The test is whether those foundations are deployed with the urgency and clarity the moment demands.