Iran war: Singapore likely to roll out targeted support in Parliament as energy costs rise

[SINGAPORE] As the Iran war enters its second month, raising the risk of a global energy crunch, Prime Minister Lawrence Wong said last Thursday (Apr 2) that the government will help cushion the impact on households and businesses.

While he did not provide specifics, he said that existing support measures could be enhanced or brought forward to “provide earlier relief”, with ministers to announce more details when Parliament sits on April 7 (Tuesday).

Industry watchers said that any additional measures are likely to be targeted, given the uneven impact of rising energy and logistics costs across sectors.

The Singapore Business Federation (SBF) and the Singapore Chinese Chamber of Commerce & Industry did not respond to queries on the support measures they are seeking.

Still, SBF chief executive officer Kok Ping Soon noted that, as a highly open and trade-dependent economy, Singapore feels such shocks quickly through higher logistics costs, energy price volatility and supply chain disruptions.

“In the near term, businesses – especially those reliant on global shipping and just-in-time supply chains – are likely to face longer delivery times and higher costs,” he said. He added that oil price volatility will feed into transport, utilities and input costs, squeezing margins across sectors – particularly for small and medium-sized enterprises.

Consultants said businesses are already adjusting operations in response to sustained disruptions, such as diversifying suppliers and stepping up scenario planning.

“Many firms are building additional buffer inventories and, where possible, absorbing short-term cost increases to protect demand, customer relationships and operational continuity,” said Lee Bo Han, partner, research and development and incentives advisory, at KPMG in Singapore. 

Beyond rising fuel and energy costs, Coordinating Minister for National Security K Shanmugam said on Saturday that food prices are also set to increase, as Singapore imports most of its food and fertiliser costs have risen.

Shanmugam, who was giving his first update as chair of the Homefront Crisis Ministerial Committee, which was announced on Thursday, said Parliament will discuss the committee’s efforts in more detail when it sits on Tuesday.

Targeting pain points

With operating costs rising, Dr Zhou Shihao, a lecturer in economics at the Singapore University of Social Sciences, said “more targeted measures would be appropriate” rather than general tax relief, which may only provide short-term relief without addressing underlying cost pressures.

For instance, given the government’s emphasis on digitalisation and artificial intelligence, support in the form of grants or subsidies for technology adoption could be more effective, he added.

“This would help firms improve efficiency and offset cost pressures over the longer term, rather than relying on one-off measures that provide only temporary relief,” said Dr Zhou, whose research interests include energy economics.

OCBC chief economist Selena Ling said assistance would likely be directed at more exposed sectors, such as energy-intensive industries, food and beverage, and small and medium-sized enterprises.

As for households, she said, residents could receive additional support beyond the recently announced rebates on utility bills and service and conservancy charges in April.

While neither Ling nor Dr Zhou outlined how such support could take shape, Dr Zhou said utility rebates would remain a useful tool.

“This is because the shock is primarily driven by higher energy and utility costs, so rebates would directly offset the increase in household expenses and be more targeted compared to general consumption vouchers like CDC Vouchers,” he said.

But, “as a matter of principle for Singaporean policymakers”, Ling said, energy subsidies are unlikely.

Singapore’s authorities have publicly stated that the city-state’s electricity price will not be subsidised. The Energy Market Authority noted that this is to “price energy correctly so that consumers are incentivised to use electricity efficiently and avoid wasteful consumption”.

If disruptions deepen

If conditions deteriorate, policymakers may need to step up both monetary and fiscal responses, economists said.

Triggers could include oil prices staying elevated – with Brent crude at around US$100 to US$120 a barrel into the second or third quarter – or Singapore’s gross domestic product growth falling significantly below the Ministry of Trade and Industry’s 2 to 4 per cent forecast for 2026.

Dr Zhou noted that Singapore, which relies heavily on imported energy, remains exposed to prolonged disruptions in the Middle East, particularly if the Strait of Hormuz – which accounts for about 20 per cent of global oil and liquefied natural gas (LNG) flows – is affected.

In such a scenario, the Monetary Authority of Singapore would play a central role in maintaining price stability through its exchange rate policy band, he said.

This could lead to more aggressive tightening at the central bank’s upcoming April policy review – scheduled on or before Apr 14 – said Ling, likely via a stronger Singapore dollar to temper imported inflation.

This aligns with earlier views from economists, who said escalating conflict and rising oil prices have tilted the odds towards further policy tightening.

Ling said support measures may also need to be broadened, including more targeted business relief such as enhanced trade financing, rental support or temporary cost offsets, alongside efforts to accelerate energy diversification.

Dr Zhou added that this would need to remain targeted and carefully calibrated to support households and businesses most affected by higher energy and transport costs.

Resilient, but within limits

The economists noted that while Singapore has built up buffers to weather short-term energy shocks, these are not unlimited.

Ling pointed to the country’s “four lines of defence” – piped gas imports, diversified LNG sources, fuel stockpiles and dual-fuel power plants – which can cushion disruptions in the near term.

However, she said, these are “not limitless”. Global competition for LNG cargoes has intensified, piped gas supplies are constrained, and backup options such as diesel are costly and emissions-intensive.

Over the longer term, Dr Zhou said, Singapore will likely need to rely more on alternative energy sources if disruptions persist.

He added that solar energy remains the most viable domestic option, with installed capacity reaching 2 gigawatt-peak (GWp) in 2025 and targets raised to 3 GWp by 2030.

“Nevertheless, structural constraints such as limited land availability imply that solar can only meet a modest share of total electricity demand,” he said, adding that regional renewable imports from Asean countries will become increasingly important.

Ling said the disruption could accelerate some of Singapore’s longer-term energy resilience plans, including expanding LNG capacity, deepening energy partnerships beyond the Middle East and advancing ongoing efforts to explore alternative sources such as nuclear energy.

“The key word these days is economic resilience – so being ‘kiasu’ and ‘kiasi’ may pay off when doing contingency planning at the national level for essential resources,” she added.