Global energy markets were thrown into turmoil on Monday morning (March 2) as crude oil prices surged by as much as 13 per cent. The spike follows a significant escalation in the Middle East over the weekend, with joint U.S. and Israeli air strikes against Iran triggering retaliatory attacks and the effective closure of the Strait of Hormuz.
Oil Markets React to Regional Turmoil
In early Asian trade, Brent crude, the international benchmark, jumped US$9.50 to hit a high of US$82.37 per barrel. While it later pared some gains to trade around US$79.86, the price remains nearly 10 per cent higher than Friday’s close. This marks one of the sharpest intraday moves since 2022.
The U.S. West Texas Intermediate (WTI) also saw a dramatic rise, touching US$75.33 before settling at US$71.68. Analysts at Citigroup suggest that if the conflict becomes prolonged, Brent could easily soar past the US$100 mark, with some worst-case scenarios projecting prices as high as US$120.
Why the Strait of Hormuz Matters
The primary driver of the price surge is the disruption at the Strait of Hormuz. This narrow waterway handles approximately one-fifth of the world’s oil supply and a significant portion of global liquefied natural gas (LNG).
For Singapore, a nation that relies heavily on imported energy, the stakes are high:
- Electricity Costs: Singapore generates the vast majority of its electricity from natural gas. While much comes via pipelines from neighbors, the Republic has increasingly diversified into LNG, notably through long-term deals with Qatar. A blockade or disruption in the Gulf could lead to higher utility bills.
- Petrol Prices: Local pump prices are closely pegged to refined oil costs. If the 13 per cent surge in crude holds, motorists can expect a corresponding hike in petrol and diesel prices in the coming weeks.
- Aviation and Shipping: As a global transport hub, Singapore’s flagship carriers like Singapore Airlines and Scoot, as well as the maritime sector, face immediate pressure from rising fuel surcharges and rerouted routes.
Government and Expert Outlook
Speaking at a community event on Saturday, Senior Minister Lee Hsien Loong warned that the conflict would “affect energy prices and impact countries far away, such as Singapore.” He emphasized that the government is closely monitoring the situation and has measures in place, such as U-Save rebates and CDC vouchers, to help households cope with the rising cost of living.
Market analysts are equally cautious. Stephen Innes, managing partner at SPI Asset Management, noted that “oil markets rarely travel in straight lines” during war-torn conditions. He added that while speculative positioning has been building for weeks, the actual impact on Singapore’s inflation will depend on whether the Strait remains closed to commercial traffic.
Impact on the Straits Times Index (STI)
The local stock market felt the tremors of the energy shock. The Straits Times Index closed lower as investors weighed the impact of higher operating costs on blue-chip companies. Shares in energy-sensitive sectors, including aviation and offshore marine, saw increased volatility as the market adjusted to a “risk-off” environment.
As the situation in the Middle East remains fluid, Singaporean businesses and consumers are advised to prepare for a period of sustained price volatility.
