Middle East Conflict Threatens Energy Crisis in Singapore and Region

A brewing conflict in the Middle East is threatening to disrupt Saudi Arabia's crude oil exports, potentially triggering an energy crisis in Singapore and the broader region. The situation worsened over the weekend when Houthi rebels seized several strategic positions, strengthening their grip on the Bab el-Mandeb Strait, a critical chokepoint for vessels moving through the Suez Canal and the Red Sea.

A drone attack on Saudi Arabia's 1,200-kilometre East-West pipeline followed, prompting a shutdown on 11 September. The pipeline carries up to seven million barrels of crude oil per day and had served as the country's main alternative export route after restrictions tightened at the Strait of Hormuz.

Since the conflict began in February, Saudi production has fallen from 10.4 million barrels per day to 6.2 million barrels per day in August, a decline of 40% according to International Energy Agency estimates. Crude exports dropped by 59% over the same period, from 7.3 million barrels per day to three million barrels per day.

UOB Kay Hian warned that heightened geopolitical tension and a potential energy crisis will give rise to elevated inflation, with businesses and consumers in Singapore likely to feel the effects through higher fuel, freight, and transport costs. The economy and loan growth could slow down due to weak business sentiment aggravated by a prolonged Middle East conflict.