Why Prices Are Rising Across Singapore - And It Starts With Fuel | Talking Point

Key Concepts

• Strait of Hormuz: A critical maritime chokepoint through which 20% of global oil passes; its closure is the primary driver of the current energy crisis.
• Hedging: A financial strategy used by airlines to lock in fuel prices months or years in advance to protect against market volatility.
• Demand Elasticity: The degree to which demand for a product changes in response to price changes (e.g., diesel is "inelastic" because it is essential for industry).
• Second-Order Effects: Indirect economic impacts, such as rising meat prices caused by increased animal feed costs resulting from higher fuel prices.
• Biofuel Blending: The practice of mixing ethanol or vegetable oils into fuel, which creates competition between food supply and energy production.

1. The Energy Crisis: Causes and Global Impact

The crisis was triggered on February 28, 2026, following joint US-Israeli airstrikes on Iran, leading Iran to shut down the Strait of Hormuz.

• Supply Shock: Approximately 10–11 million barrels of crude oil per day (10% of global demand) have been removed from the market.
• Regional Vulnerability: Asia is disproportionately affected because 80% of the crude passing through the Strait of Hormuz is bound for Asian markets.
• Refinery Damage: Key infrastructure in the Middle East, including Saudi Arabia’s Ras Tanura, Kuwait Petroleum, and the UAE’s Ruwais refinery, have suffered damage, with recovery estimated to take 6–12 months.

2. Sector-Specific Impacts

• Private Hire & Taxis: Despite government one-off $200 cash payouts and fuel discount vouchers, drivers face significant margin compression. Drivers note that subsidies cover only a fraction of the 20% increase in fuel costs, forcing them to drive more or rely on passenger fuel surcharges.
• School Bus Operators: This sector faces a "triple-hit" because they rely on diesel, which has surged 75%—three times the rate of petrol. Operators report a 30–40% increase in operating costs, while government subsidies only cover 13%. Many face the risk of business failure or the need for loans.
• Aviation: Jet fuel prices have spiked by 138%. Airlines that hedged specifically for jet fuel (e.g., Singapore Airlines) are better positioned than those that hedged only for crude oil, as the cost to refine crude into jet fuel has risen from $20 to over $100 per unit.

3. Inflationary "Second-Order" Effects

The crisis is causing a ripple effect across the supply chain:

• Food Prices: Air-freighted goods have seen costs rise 2x to 4x. Essential items like cheese are expected to rise 15–20%.
• Biofuel Competition: Because some countries mandate blending ethanol or sunflower oil into fuel, producers are diverting food-grade oils to refineries, driving up the price of cooking oils and sugar.
• Agriculture: One-third of the world’s traded fertilizer passes through the Strait of Hormuz. A 5% decline in fertilizer supply is estimated to cause a 2.5% drop in crop yields, eventually impacting meat prices as animal feed costs rise.
• Packaging: Plastic, a petroleum derivative, has seen a 15% cost increase, affecting the price of almost all consumer goods.

4. Government Strategy and Security

Minister of State Low Yen Ling outlined Singapore’s approach to the crisis:

• Diversification: Singapore has moved to source oil and gas from North America, South America, and Africa to reduce reliance on the Middle East.
• Targeted Support: The government rejects blanket fuel subsidies, arguing they favor those who drive more. Instead, they provide targeted aid to vulnerable groups (e.g., cabbies, bus operators).
• Shared Burden: The government maintains that the cost of the crisis must be shared between the government, businesses, and consumers.
• Reserves: While Singapore has fuel stockpiles, the government is monitoring international trade flows and bilateral agreements (e.g., with Australia and New Zealand) to ensure continued supply.

5. Expert Outlook

June Goh, an oil market analyst, suggests that prices will remain elevated throughout 2026.

• Recovery Hierarchy: Petrol prices are expected to recover fastest due to higher inventory levels and demand elasticity (people can drive less). Jet fuel may recover as airlines cut discretionary flights. Diesel and marine fuel are expected to remain high due to their inelastic, essential nature in global logistics.

Conclusion

The current energy crisis is not merely a fuel price issue but a systemic shock affecting food, logistics, and manufacturing. Because the Strait of Hormuz remains a critical bottleneck, the "new normal" involves higher operational costs across all sectors. The synthesis of the report indicates that while Singapore is relatively secure in terms of supply, the economic burden of these costs will continue to be passed down to the consumer, with further electricity tariff hikes expected in the near future.