US$100 Brent oil risks stalling SG industrial production at 0%

Escalating tensions between Israel and Iran compound downside risks for the manufacturing sector.

Singapore’s industrial production is at risk of stagnating at 0% especially if Brent oil, the global benchmark for pricing oil, remains at $128.52 (US$100) or higher, according to a report by RHB.

Rising oil prices are likely to weigh on Singapore’s trade balance. Higher global oil prices would increase input and energy costs for firms, especially in manufacturing, transport, and petrochemicals, likely reducing production and weakening industrial output.

“Given the inelastic demand for crude oil, these price increases are also expected to affect Singapore’s trade balance negatively,” RHB said.

The report established strong links between Brent crude and London Metal Excange Index (LMEX) prices with Singapore’s producer price index (PPI), indicating that higher oil and metal prices could drive up production costs. RHB noted that for every 10% increase in Brent crude was a 1.0 ppt increase in CPI during the past crises.

UOB noted that while AI-driven demand is supporting Singapore’s industrial output in early 2026, extended US–Israel/Iran tensions could compound downside risks. The report highlighted potential spillovers from manufacturing (21% of GDP) to wholesale trade (13%) and transport & storage (6%), which could further weigh on exports and production, reinforcing the pressure on IP already evident from rising Brent oil prices.

In February, IP growth fell lower than expected by 0.1% year-on-year, a major decline from 12.9% in January, largely due to Chinese New Year holiday effects.

Combined January-February growth was 6.9% y-o-y, driven by strong electronics output, particularly semiconductors, which rose 27.9% y-o-y on AI-related demand, whilst pharmaceuticals output fell sharply.

Nomura expects core inflation of 2.1%, up sharply from 0.7% in 2025 and above the latest MAS forecast of 1% to 2%. The surge in energy prices, particularly crude oil and LNG, should have a significant impact on core inflation in coming months, including via lagged upward adjustments to household utility costs, offsetting some downside risks from lower education costs

Analysts maintain their GDP growth forecast for 2026 but warned that risks are likely tilted towards the negative side.

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