Singaporean Businesses Under Pressure as Middle East Tensions Escalate
Singaporean companies are increasingly feeling the pinch from the escalating conflict in the Middle East, with a recent survey revealing that approximately two-thirds of firms report a moderate to severe impact on their operations. The Singapore Business Federation (SBF) poll highlights soaring energy and logistics costs, coupled with softening customer demand, as the primary channels through which businesses are being affected.
Smaller Firms Face Deeper Disruption and Weaker Sentiment
The SBF’s findings underscore a significant challenge to the cost base of many companies. A striking 66% of respondents cited higher energy prices, 54% reported increased shipping and freight costs, and 48% noted a decline in customer demand. The severity of this disruption is not uniform, with smaller firms experiencing a more profound impact. While about half of larger companies categorized the impact as moderate, roughly one in three small and midsize enterprises (SMEs) described the effect as significant to severe. Furthermore, larger firms are more frequently reporting increased spending on insurance and security, with 42% indicating higher outlays in these areas, compared to just 17% of SMEs.
Sentiment indicators mirror this divide. The SBF reported that 78% of large firms expressed confidence in managing ongoing volatility, a stark contrast to only 36% of SMEs. Across all respondents, 54% voiced significant concern about their long-term viability if current conditions persist beyond the next six months, pointing to elevated credit and continuity risks, particularly within the crucial SME segment.
Industry Leaders Call for Support Amidst Rising Volatility
SBF CEO Kok Ping Soon commented on the situation, stating, “Our latest poll shows a growing confidence gap between SMEs and larger firms. While bigger companies are better able to manage rising costs, SMEs are feeling the strain more acutely amid ongoing energy and logistics volatility.” He noted that businesses are tightening costs and managing risks through supply chain diversification and currency hedging. Mr. Kok also emphasized the need for government intervention, adding, “Businesses welcomed the higher Corporate Income Tax rebate but are also calling for working capital support and help with logistics costs. SBF will continue working with the government to keep support measures targeted and effective.”
Firms Adapt, Government Support Crucial
In response to the evolving cost environment, about half of the surveyed firms have revised commercial arrangements, either by raising prices or renegotiating contracts. SMEs are particularly focused on liquidity, with 40% prioritizing cash preservation through stricter control of operating expenses and delaying discretionary spending. Larger companies, conversely, are more likely to employ financial risk-management instruments, such as fuel or foreign-exchange hedging (one-third of these firms), and increasing investments in energy efficiency (17%).
The survey also highlighted business expectations for government assistance. The most frequently cited needs were working capital assistance (41%) and help with managing logistics costs (35%). Measures announced by Parliament, such as the enhanced Corporate Income Tax rebate (60%), the Energy Efficiency Grant (43%), and support to defray cost increases in government projects (31%), were viewed as providing the most immediate benefits.
Global Outlook Darkens: Allianz Trade Links Insolvencies to Regional Tensions
This localized strain in Singapore aligns with a more pessimistic global insolvency outlook, as detailed in a recent update from trade credit insurer Allianz Trade. The firm now projects a 6% rise in worldwide business failures in 2026, marking a fifth consecutive annual increase, before stabilizing at a higher level in 2027. Alarmingly, Allianz Trade estimates that the ongoing conflict will add more than 15,000 insolvencies over 2026 and 2027 compared to its previous baseline, with Asia expected to account for more than half of these additional cases.
Allianz Trade attributes this revised outlook, in part, to US-Israel military operations against Iran, Iranian missile retaliation, and the temporary closure of the Strait of Hormuz. These critical developments have significantly disrupted oil and liquefied natural gas flows, contributing to heightened volatility in shipping and energy markets. Such pressures closely mirror those reported by Singaporean firms in the SBF poll.
Implications for Singapore’s Insurance Sector
For Singapore-based insurers, the convergence of SBF’s findings and Allianz Trade’s projections signals a rapidly shifting risk landscape. While Allianz Trade’s baseline scenario anticipates some easing in Singapore’s insolvency trend, the SBF survey indicates that many local firms, especially SMEs, are already under considerable cost and demand strain. This necessitates a reassessment by insurance professionals of credit and counterparty criteria, adjustment of sectoral appetites, and a review of how risk and liquidity considerations are integrated into client discussions, particularly in sectors highly sensitive to energy prices, logistics disruptions, and external demand.
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