Regardless of how the war plays out, the Republic can be expected to take steps to shield itself from such shocks in the future.

By Selena Ling, Chief Economist and Head of OCBC Group Research

Singapore, 02 April 2026 – “The spice must flow”, as Dune fans know because the narrative about a fictional desert planet feels uncomfortably real in today’s energy markets.

Substitute “oil” for “spice” and the Strait of Hormuz becomes Arrakis – a choke point which, if you control it, gives you disproportionate influence over the world.

The ongoing Iran war has turned that metaphor into macroeconomic reality. Roughly a fifth of global oil and gas transits this narrow passage, and its disruption has already driven energy prices sharply higher, injecting volatility into equities, pushing bond yields up and reviving fears of stagflation.

Even before we get into the big picture, households across the world will feel the pinch in very real ways. In Singapore, they will pay higher electricity and gas tariffs in the second quarter of 2026, with potentially sharper increases to follow if the Iran war drags on.

The pain could get worse, with market concerns shifting from inflation to stagnation and even potentially recession, amid uncertainty over how long the war will persist.

This gives rise to two questions. One, how badly will growth be hit, and two, what can Singapore do to safeguard itself?

Shock upon shock

Energy supply shocks behave less like cyclical slowdowns and more like a blunt tax on global demand and, therefore, growth. Higher oil and gas prices raise production costs, compress margins and erode household purchasing power.

For Asia, where the majority of energy imports pass through the Hormuz strait, the effect is especially acute, and as business and consumer confidence wanes under the weight of persistently high inflation, growth could be hit.

With shipping routes under stress, supply chains could face renewed disruption and higher insurance costs.

Central banks are in a bind. Easing monetary policy could entrench inflation, but policy tightening could worsen the slowdown and tip economies into recession.

The threshold for this is not especially high. Current oil prices are hovering in the US$100 to US$120 per barrel range. This is inflationary, but not necessarily recessionary.

However, sustained oil prices in the US$130 to US$150 per barrel range could push some vulnerable economies into contraction as demand dries up.

Already, expectations of rate cuts by the US Federal Reserve have faded and there is even speculation about potential rate hikes to head off inflation. The recent increase in the long-tenor US Treasury bond yields reflects fiscal concerns over the prospective bill of funding a prolonged conflict.

Three fault lines will determine whether this remains a temporary supply shock or becomes a full-fledged crisis.

First, how long will the conflict last? Inventories have tightened and the cumulative drag on growth has intensified.

Second, how extensive is the damage to infrastructure such as ports, pipelines or export terminals? Major damage could see oil prices surging over extended periods towards levels that almost guarantee recession.

Third, if there are financial spillovers – such as equity market corrections and widening credit spreads – the supply shock can quickly morph into a demand shock as confidence collapses.

There are also concerns over whether the energy-intensive artificial intelligence capex boom is sustainable. The boom has been driving the global growth engine, which could stall if interest rates remain high for long. The energy shock could then cascade into the financial system.

Singapore’s options

The picture is more nuanced for Singapore. As a small, open, energy-importing economy deeply plugged into global trade and finance, the Republic always acts as the canary in the coal mine. It can quickly sense global headwinds shifting through its financial, manufacturing, trade, aviation and maritime logistics channels, especially if this is accompanied by a weakening in external demand from major economies like the US and China.

If financial conditions tighten simultaneously, then small and medium-sized enterprises may also be more vulnerable if a slowdown materialises abruptly.

That said, Singapore is also unusually well-equipped to manage it.

To start with, the country’s reserves provide scope for targeted intervention to offset cost pressures for households and support vulnerable sectors. Its FY2026 budget had projected a conservative budgetary surplus of 1 per cent of gross domestic product (GDP) for FY2026, giving it fiscal headroom.

The Monetary Authority of Singapore (MAS) can also allow the trade-weighted Singapore dollar to appreciate and mitigate imported inflation. With the upcoming April monetary policy statement, the MAS may choose to tighten monetary policy earlier rather than later.

Also, with its dense network of trade agreements and partnerships that enable flexibility in sourcing and rerouting goods and services, it can diversify trade.

It helps that Singapore has energy cooperation with Japan which is strategically valuable over the medium term particularly for liquefied natural gas (LNG), hydrogen and renewables. Another option is buying Russian oil – while potentially cost-effective, this route is constrained by geopolitical, legal and reputational considerations.

A more sustainable route is to ramp up Singapore GasCo and LNG procurement. Centralised procurement can improve coordination and bargaining power and help secure supply in tight markets. While this cannot alter global price dynamics, it can buy time and stability at the margin.

Singapore’s role as a refining and trading centre provides some agility to capture margins, optimise flows and reallocate supply, but domestic prices remain anchored to global benchmarks.

As such, the challenge lies not in the absence of tools, but in balancing them effectively under uncertainty to buffer shocks and provide resiliency rather than immunity.

Regardless of how the Iran war plays out, Singapore’s overriding objective will be to build up its economic resilience. For this, it could first prioritise energy security. This may require higher strategic reserves, diversified suppliers and longer-term contracts, even if they come at a higher cost.

Singapore could also urgently pursue regional power grids, renewable energy and alternative fuels including small modular nuclear reactors as strategic imperatives.

Second, deploying fiscal support early and selectively as targeted relief can prevent second-round effects, particularly for lower-income households and energy-intensive industries.

Third, carefully calibrating exchange rate policy to ensure a stronger trade-weighted Singapore dollar can offset imported inflation while considering the Republic’s overall economic competitiveness.

Last but not least, no South-east Asian economy can navigate this shock alone. Regional cooperation could amplify economic resilience, whether through shared strategic reserves and coordinated releases, accelerating the development of the ASEAN Power Grid to enable cross-border electricity flows, or deepening the supply chain integration to reduce dependence on external choke points.

For example, the Johor-Singapore Special Economic Zone could also do its part to enhance economic security by enhancing production flexibility, lowering costs and attracting investment that can play to these strengths and help to partially offset external shocks.

Trade and conflict are intractably intertwined as one famous quote suggests – “If goods don’t cross borders, soldiers will”. The Strait of Hormuz is a case in point as a physical choke point and fault line where geopolitics meets macroeconomics. The global economy has not yet tipped into recession, but risks are rising.

For Singapore, the singular objective is not to avoid the shock, which is likely impossible (the official 2026 GDP growth forecast of 2 per cent to 4 per cent is already being reviewed), but how to emerge more resilient in times to come.

In a world where a narrow strait can dictate global outcomes, the lesson is clear that the control of flows – whether they are energy, trade and capital or even geopolitical goodwill – remains the ultimate source of economic resilience.

This article was first published in The Straits Times on 2 April 2026.