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Singapore’s financial markets saw risk-off but contained movements this week, with the benchmark equity index down by 1.6%, and the SGD weakening by 1.0% against the USD, amidst the fluid geopolitical situation in the Middle East. The economy is confronting this uncertainty from a relatively strong position, amid solid growth momentum buoyed by global AI-related tailwinds and still-low inflation at the start of 2026. As a price taker that is highly dependent on energy imports, Singapore’s consumers and export-oriented firms will have to brace for higher electricity, transport-fuel, and shipping costs arising from the increase in global energy prices and supply chain disruptions, particularly if the Middle East conflict becomes protracted. We estimate around 7+% of the overall CPI basket would likely be directly impacted by higher energy prices. For now, imported price pressures should be dampened and contained by continued appreciation of the SGD nominal effective exchange rate, unless Brent crude oil prices spike further, which might complicate the MAS’s policy bias towards earlier tightening. Manufacturers are already facing capacity and supply chain constraints, as reflected in the sharper contraction in the supplier deliveries sub-index of the February manufacturing purchasing managers’ index at 49.6 – the lowest in about two years since early 2024. The escalation in geopolitical tensions only heightens the risks of further disruptions that could dampen factory and trade growth.
Despite recent tensions, the direct impact on Indonesia’s trade and economic growth appears marginal at this juncture. Indonesia’s trade exposure to Iran has been negligible over the past six years, and while total trade with the broader Gulf region reached $17.8bn (3.4% of total) in 2025, the existing economic buffers are significant. Indonesia is a net oil importer, but also a net commodity exporter, which suggests that any negative impact on the trade balance can be averted if the broader metals/minerals universe also remains firm. Indonesia is currently strengthening these ties through existing agreements, as well as ongoing Comprehensive Economic Partnership Agreement negotiations with the other countries in that region (Kuwait, Bahrain, Oman, and Qatar). This deal was due for completion this year to boost exports in palm oil, motor vehicles, and the halal economy. We maintain our current economic forecasts, as the structural shift in energy subsidies (0.8% of GDP last year) provide a much-needed cushion against external volatility. BI is expected to contain the scale of IDR depreciation, especially if USDIDR attempts to retest 17000.
Amongst the ASEAN-6 countries, the net oil trade balance is most adverse in Thailand, Malaysia, and Vietnam (as % of GDP), with the pass-through to price pressures most material in Thailand and Philippines. Additionally, while less strategic, Thailand and Singapore are top LNG buyers in the region, but with a well-distributed supplier mix, especially in Singapore. Much of the region will likely monitor developments in the Middle East with trepidation. THB, MYR, and SGD are down more than 1% this week, and regional currencies might underperform if US dollar stays bid. Regional central banks are unlikely to act pre-emptively on policy, preferring to remain on hold while maintaining a keen watch on the domestic currency and bond yield movements. 
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