Global oil and natural gas prices have surged since 28 February, when the US and Israel launched an air campaign against Iran. The Islamic republic has effectively blocked the Strait of Hormuz, which in peacetime handles the flow of a fifth of global oil and natural gas supplies from the Persian Gulf.

MAS warned in its latest macroeconomic review that Singapore’s very open economy will be confronted by higher inflation, an erosion of real income, and physical supply shortages. Higher energy costs would increase production expenses, compress margins, and potentially weigh on firms’ capital expenditures and output decisions.

The disruption to supplies and maritime trade routes could result in a near-term negative impact on the Singapore economy, MAS said. The bunkering industry, which underpins Singapore as the world’s biggest refuelling port, is already feeling the impact.

Sectors in Singapore that depend most heavily on energy supplies will be directly affected, MAS noted. The top energy-dependent industries include petroleum, gas and electricity; petrochemicals; transportation services for land, air and sea; and water and waste services.

These sectors face a two-pronged impact. First, their production volumes may be affected. Second, higher input costs from energy and intermediate goods could further constrain industrial production. Supply disruptions and shortages of key intermediate inputs could compound these pressures.

The labour market may also suffer some fallout from a prolonged energy disruption, with the risks of slower hiring and pay growth alongside higher inflation and weaker growth. Mr Edward Lee, chief economist at Standard Chartered Bank in Singapore, said there is significant uncertainty over how long the conflict would last and keep the flow of oil, natural gas and other inputs and commodities from the region constrained.

Construction and real estate businesses are among those likely to face higher costs from the energy shock. Higher energy prices flow through to construction materials, logistics, and operational expenses — all of which can push up development costs and, eventually, property prices.

For the property sector, the key risk is a combination of rising construction costs and tighter monetary conditions. MAS’s decision to tighten policy by allowing a stronger Singapore dollar aims to contain imported inflation, but a stronger currency and potentially higher interest rates could cool demand in the property market.

That said, Singapore’s property market has shown resilience in past periods of geopolitical uncertainty. The more immediate concern for developers and buyers is whether the energy crisis will be short-lived or prolonged, as this will determine the extent of cost pass-throughs and their impact on pricing and demand.