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FAST
SINGAPORE: The global economy that has weathered a year of trade tariffs and other shocks now faces a new test: an escalating United States-Israel conflict with Iran that threatens to disrupt global oil and natural gas supplies and unleash potentially far-reaching implications for the world.
Oil prices have already risen sharply, driven more by uncertainty than by confirmed supply losses. Much of this caution stems from the pivotal role of the Strait of Hormuz, a narrow waterway to the south of Iran that handles roughly 20 per cent of global oil consumption and a fifth of global liquefied natural gas (LNG) trade.
While shipping through the crucial route has not stopped entirely, some vessels have slowed or paused their transit due to higher insurance costs and rising security risks. Marine insurers have also withdrawn war risk cover for ships in the region, leaving more than a hundred vessels, including oil and LNG tankers, stranded or forced to take longer alternative routes.
Higher oil and gas prices influence many parts of the world economy, from transportation and power generation, to commodity production and industrial activity. When energy markets become volatile, it forces companies to build in buffers such as by holding more stocks, reroute ships or delay shipments until risks subside – all of which add to costs that will eventually filter down to consumers.
Because oil is such a key input for most economies, rising prices tend to spill into inflation.
Studies have shown that geopolitical oil shocks are significant contributors to global inflation, and the current tensions renew that risk. A prolonged price increase of US$15 per barrel can push global inflation higher by nearly 0.5 percentage points, while slightly reducing growth momentum by 0.2 percentage points.
The impact varies across regions. The United States, now a large producer of oil and gas, is somewhat shielded from supply disruptions, though petrol prices and financial market sentiment still respond to global turbulence. The war in Iran also complicates the US Federal Reserve’s inflation fight and rate-cut trajectory for interest rates.
Europe remains more vulnerable, given its reliance on imported energy. Past experiences, such as Russia’s invasion of Ukraine in 2022, have shown how the region's inflation reacted more sharply to energy shocks.
Asia is also highly exposed.
Around 80 per cent of the crude oil passing through the Strait of Hormuz is destined for Asian buyers, including China, India, Japan and South Korea. Even temporary uncertainty can prompt these economies to adjust stockpiles, revise energy purchasing strategies and prepare for higher import costs. Already, the region’s financial markets are feeling the heat, with the panic selling across North Asia on Wednesday (Mar 4).
Specifically for China – which just announced a lower economic growth target for 2026, marking its first downgrade since 2023 – the end of discounted Iranian oil imports could add to the economic challenges from heightened trade tensions with the US and a protracted property downturn.
At the same time, shipping routes already strained by earlier disruptions through the Red Sea and Suez Canal, where transit volumes were 47 per cent below normal in January, have limited room to absorb additional detours. With fewer stable routes available, delays and higher freight rates become more likely – all of which are bad news for global trade.
For Singapore, a trade-dependent economy that imports nearly all its energy, the implications are direct.
The first channel is energy costs. Household electricity tariffs, which are closely tied to international gas prices with a short time lag, are set to reverse recent declines in the upcoming quarters if global benchmarks remain elevated. Pump prices tend to respond even sooner, making transportation and logistics more expensive.
Rising fuel and shipping costs will eventually reach consumers. Groceries, meals, deliveries and travel all incorporate energy-related expenses at different stages of production and distribution. For households, this means the cost of living may edge up if energy prices remain high for an extended period.
Businesses face differing pressures. Energy-intensive sectors, such as petrochemicals, may see feedstock costs increase. Companies dependent on Middle Eastern or European supply chains could encounter longer transit times or higher freight charges.
Officials have warned of potential economic impact, with Deputy Prime Minister Gan Kim Yong noting earlier this week that Singapore will reassess its growth and inflation forecasts if necessary.
Headline inflation in Singapore averaged 0.9 per cent in 2025, and core inflation at 0.7 per cent. A sustained rise in oil and gas prices could push these figures higher, particularly in categories linked to utilities and transport. With that, the Monetary Authority of Singapore is expected to maintain its current exchange rate policy for now, with a stronger Singapore dollar helping to offset imported inflation if needed.
The extent of these ripple effects will depend on the duration of tensions and the degree to which shipping through the Strait of Hormuz remains stable. If geopolitical conditions ease, energy markets may correct quickly. But if uncertainty persists, cost pressures from energy and freight will continue shaping global and regional economic performance.
Only one thing is clear: Global tensions have become a routine part of the economic landscape and countries will need to continue managing their effects with pragmatic adjustments rather than expecting stability to return quickly.
Bernard Aw is Chief Economist for Asia Pacific at Coface.
Source: CNA/sk
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FAST
SINGAPORE: The global economy that has weathered a year of trade tariffs and other shocks now faces a new test: an escalating United States-Israel conflict with Iran that threatens to disrupt global oil and natural gas supplies and unleash potentially far-reaching implications for the world.
Oil prices have already risen sharply, driven more by uncertainty than by confirmed supply losses. Much of this caution stems from the pivotal role of the Strait of Hormuz, a narrow waterway to the south of Iran that handles roughly 20 per cent of global oil consumption and a fifth of global liquefied natural gas (LNG) trade.
While shipping through the crucial route has not stopped entirely, some vessels have slowed or paused their transit due to higher insurance costs and rising security risks. Marine insurers have also withdrawn war risk cover for ships in the region, leaving more than a hundred vessels, including oil and LNG tankers, stranded or forced to take longer alternative routes.
RIPPLES BEYOND ENERGY MARKETS
Higher oil and gas prices influence many parts of the world economy, from transportation and power generation, to commodity production and industrial activity. When energy markets become volatile, it forces companies to build in buffers such as by holding more stocks, reroute ships or delay shipments until risks subside – all of which add to costs that will eventually filter down to consumers.
Because oil is such a key input for most economies, rising prices tend to spill into inflation.
Studies have shown that geopolitical oil shocks are significant contributors to global inflation, and the current tensions renew that risk. A prolonged price increase of US$15 per barrel can push global inflation higher by nearly 0.5 percentage points, while slightly reducing growth momentum by 0.2 percentage points.
The impact varies across regions. The United States, now a large producer of oil and gas, is somewhat shielded from supply disruptions, though petrol prices and financial market sentiment still respond to global turbulence. The war in Iran also complicates the US Federal Reserve’s inflation fight and rate-cut trajectory for interest rates.
Europe remains more vulnerable, given its reliance on imported energy. Past experiences, such as Russia’s invasion of Ukraine in 2022, have shown how the region's inflation reacted more sharply to energy shocks.
Asia is also highly exposed.
Around 80 per cent of the crude oil passing through the Strait of Hormuz is destined for Asian buyers, including China, India, Japan and South Korea. Even temporary uncertainty can prompt these economies to adjust stockpiles, revise energy purchasing strategies and prepare for higher import costs. Already, the region’s financial markets are feeling the heat, with the panic selling across North Asia on Wednesday (Mar 4).
Specifically for China – which just announced a lower economic growth target for 2026, marking its first downgrade since 2023 – the end of discounted Iranian oil imports could add to the economic challenges from heightened trade tensions with the US and a protracted property downturn.
At the same time, shipping routes already strained by earlier disruptions through the Red Sea and Suez Canal, where transit volumes were 47 per cent below normal in January, have limited room to absorb additional detours. With fewer stable routes available, delays and higher freight rates become more likely – all of which are bad news for global trade.
Related:
WHAT IT MEANS FOR SINGAPORE
For Singapore, a trade-dependent economy that imports nearly all its energy, the implications are direct.
The first channel is energy costs. Household electricity tariffs, which are closely tied to international gas prices with a short time lag, are set to reverse recent declines in the upcoming quarters if global benchmarks remain elevated. Pump prices tend to respond even sooner, making transportation and logistics more expensive.
Rising fuel and shipping costs will eventually reach consumers. Groceries, meals, deliveries and travel all incorporate energy-related expenses at different stages of production and distribution. For households, this means the cost of living may edge up if energy prices remain high for an extended period.
Businesses face differing pressures. Energy-intensive sectors, such as petrochemicals, may see feedstock costs increase. Companies dependent on Middle Eastern or European supply chains could encounter longer transit times or higher freight charges.
Related:
Officials have warned of potential economic impact, with Deputy Prime Minister Gan Kim Yong noting earlier this week that Singapore will reassess its growth and inflation forecasts if necessary.
Headline inflation in Singapore averaged 0.9 per cent in 2025, and core inflation at 0.7 per cent. A sustained rise in oil and gas prices could push these figures higher, particularly in categories linked to utilities and transport. With that, the Monetary Authority of Singapore is expected to maintain its current exchange rate policy for now, with a stronger Singapore dollar helping to offset imported inflation if needed.
The extent of these ripple effects will depend on the duration of tensions and the degree to which shipping through the Strait of Hormuz remains stable. If geopolitical conditions ease, energy markets may correct quickly. But if uncertainty persists, cost pressures from energy and freight will continue shaping global and regional economic performance.
Only one thing is clear: Global tensions have become a routine part of the economic landscape and countries will need to continue managing their effects with pragmatic adjustments rather than expecting stability to return quickly.
Bernard Aw is Chief Economist for Asia Pacific at Coface.
Source: CNA/sk
Newsletter
Week in Review
Subscribe to our Chief Editor’s Week in Review
Our chief editor shares analysis and picks of the week's biggest news every Saturday.
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Stay updated with notifications for breaking news and our best stories
Download here
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Continue reading...