UOB Global Economics & Markets Research said Singapore’s GDP exposure to the Middle East conflict is modest if the shock is short-lived. It assumed the conflict remains heightened for within four weeks and that oil stays below US$100 per barrel, then normalises gradually. Exports to key Middle East economies are about 2% of Singapore’s total exports. UOB kept its 2026 GDP growth forecast at 3.6%, while noting possible knock-on effects through weaker global consumption and investment.

External Demand And Supply Chain Risks

It said external demand could weaken due to lower sentiment and supply-chain disruption, reducing exports. It added that Singapore’s high openness means a large share of domestic value-added is supported by foreign demand. UOB said higher utility, transport and input costs could lift inflation in goods and services. Using 2005–2025 data, it estimated that a US$10 per barrel rise in Brent could raise core inflation by about 30–40 basis points. It said this increases the likelihood MAS tightens policy at the April 2026 MPS. Its base case is a 50bps rise in the S$NEER band slope to 1.0% per annum, with a chance of delay to the July 2026 MPS. UOB said the near-term macro impact is more on inflation than on growth. The article noted it was produced using an AI tool and reviewed by an editor.

Market Strategy And Policy Expectations

We see the current Middle East conflict’s main impact on inflation rather than on economic growth for now. The direct hit to Singapore’s economy seems limited, but the risk comes from secondary effects like weaker global demand. Therefore, our focus should be on how rising costs will affect monetary policy in the immediate future. The key channel for this is the oil price. With Brent crude futures now trading near US$95/bbl, up over 15% in the last month, we are approaching the critical US$100/bbl mark. Based on our models using data from 2005 to 2025, such a sustained increase from the year’s baseline could push Singapore’s core inflation significantly higher. This puts immense pressure on the Monetary Authority of Singapore (MAS) to act in its upcoming April 2026 meeting. Interest rate markets are now pricing in a greater than 75% chance that the MAS will tighten policy by steepening the slope of the S$NEER policy band. This is a sharp reversal from February 2026, when expectations were for policy to remain on hold. For traders, this points towards positioning for a stronger Singapore Dollar. Options strategies that benefit from a rise in the SGD against its trading partners, particularly currencies with more dovish central banks, appear attractive. We should also consider forwards that lock in a more favorable exchange rate in anticipation of the MAS decision. Higher inflation and tighter policy create headwinds for equities, which could dampen sentiment on the Straits Times Index (STI). We should consider buying put options on the STI to hedge against a potential market dip caused by cost pressures and concerns over global growth. Volatility is likely to increase, making options pricing more attractive. Looking back, we saw a similar situation unfold in 2022 when the conflict in Ukraine caused an energy price shock. The MAS responded decisively then with off-cycle policy tightening moves to anchor inflation expectations. This historical precedent supports our view that the central bank will prioritize fighting inflation again, even if it creates some drag on growth. Create your live VT Markets account and start trading now.

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