'Domino effect': Why Singapore's oil shock will play out in Australia
Singapore is exposed to the oil shock from Iran's effective closure of the Strait of Hormuz, and its response will shape the fuel crisis in Australia.
www.abc.net.au
What happens on a small artificial island near Singapore's CBD plays out at petrol pumps across Australia.
Jurong Island, a 32-square-kilometre patch of reclaimed land, is the centre of an Asian oil hub that supplies about 20 per cent of Australia's refined oil.
"When people are worried about their petrol, they should be keeping a close eye on what happens in Singapore," said Kevin Morrison, an energy finance analyst at the Institute for Energy Economics and Financial Analysis.
While the small island city state is one of Asia's biggest oil producers, it has no crude oil reserves of its own, buying about two-thirds of its supply from the Middle East for refining.
This leaves Singapore's refineries exposed to the oil shock from Iran's effective closure of the Strait of Hormuz, a critical choke-point on trading routes between Gulf states and Asia.
"This disruption … is having a big impact on Singapore," Mr Morrison said.
On Jurong Island, two of Singapore's three refineries have cut back their output due to constrained crude availability, news wires agency Reuters reported last month, citing anonymous sources.
Australia was exposed to any impacts on Singapore's refineries because it had limited domestic oil refining and was highly dependent on imports, said Lee Poh Seng, professor and executive director at the National University of Singapore's Energy Studies Institute.
"If Singapore's throughput or flexibility [in oil production] is impaired, the consequences are regional, not merely domestic," he said.
Meanwhile, Singapore's energy minister met his Australian counterparts in Canberra on Wednesday after the countries agreed last month to keep their energy trade flowing despite the oil shock.
Singapore's economic officials have also told market intelligence group S&P Global Energy the country's refineries are maintaining stable operations and drawing on diverse supplies of crude oil as war between the United States, Israel and Iran disrupts trade.
All eyes on Singapore
Singapore, once nicknamed the "Houston of Asia", has made itself an oil hub by capitalising on its geographic location.
It used its place along major trade routes between the Middle East and Asia to attract oil companies to its shores, building one of the world's largest oil trading and refining hubs, capable of processing 1.5 million barrels of crude a day.
Singapore's oil industry supports its status as a major fuel station for ships. (Reuters: Edgar Su)
"The real importance is not what it produces, it is what it connects," said Rahman Daiyan, an associate professor at the University of New South Wales.
"Crude oil flows in, largely from the Middle East, gets refined and blended, and then flows back out across the region."
It makes Singapore the place where fuel prices for much of the Asia-Pacific region — including Australia — are effectively decided, Dr Daiyan said.
"It is where fuels from different origins are blended into standardised products, allowing them to be bought and sold interchangeably," he said.
"Traders store fuel [there] and move it across the region in response to price differences."
As many of Australia's domestic refineries closed in the past decade, it became more reliant on Asian oil refining hubs like Singapore.
Bukom Island hosts one of Singapore's major oil refineries. (AFP: Roslan Rahman)
The influence of Singapore's fuel price index also means that disruptions to its refining industry — such as crude supply shocks or geopolitical events — are reflected at bowsers across Australia.
"Reduced refinery output, combined with strong underlying demand, pushes up Singapore benchmark prices," Dr Daiyan said.
"This is further amplified by volatility in crude markets and logistical pressures, including higher shipping and bunker fuel costs."
Australia is yet to directly feel the impact of supply shortages caused by the Iran war. But that's set to change in the coming weeks, with oil supply shortages now hitting the country's fuel suppliers in Asia.
Experts say countries most affected by disruptions to Singapore's oil refining would be those depending on it for refined oil to meet surges in demand and smoothen out price shocks.
"The main impact on Singapore's export destinations will likely come through higher prices, thinner cargo availability, and longer lead times rather than an abrupt stop in supply," Professor Lee said.
"If Asia remains 'short-fuelled' because of reduced crude inflows, refinery run cuts, and export restrictions elsewhere, then Singapore-origin barrels become more valuable and more contested.
"In that environment, buyers are not just paying more for fuel; they are paying more for reliability and proximity."
In his national address on Wednesday, Australian prime minister Anthony Albanese said the government was using the country's "strong trading relationships with our region to bring more petrol, diesel and fertiliser to Australia".
'Domino effect'
Singapore's economic officials are projecting confidence, telling S&P Global Energy last month that its refineries have the flexibility to source crude from other regions in response to the oil shock.
The financial intelligence firm said its data showed shipments of crude and condensate — liquid hydrocarbons typically occurring with natural gas — from Russia, Brazil, the US and Venezuela rose for Singapore in the first half of March.
Singapore Economic Development Board (EDB) executive vice president Lim Wey-Len told S&P Global Energy it was in close contact with energy companies.
Singapore is looking for alternative sources of crude supply after disruptions to shipments from Gulf states. (Unsplash: Jisun Han)
The EDB — Singapore's government body overseeing business and investment — declined to respond to questions from the ABC, while Singapore's three refinery operators ExxonMobil, Aster and Singapore Refining Company either did not respond or declined to comment.
But securing alternative crude oil supplies would take time and constraints would have a "domino effect" among export destinations, Dr Daiyan said.
"The impact is immediate and cascading. Refineries in Singapore cannot simply substitute [crude oil supply] at short notice, which forces them to scale back operations and reduce utilisation," he said.
"Lower refinery [output] means less refined product entering the market, tightening regional supply."
Singapore was prioritising the continuity of supply as it responded to the oil shock, he said.
"The government has worked closely with industry to secure diversified crude and fuel imports, optimise refinery operations, and draw on commercial and strategic stockpiles where needed," he said.
"It has also prioritised keeping markets open and liquid, ensuring that Singapore continues to function as a reliable trading and redistribution hub.
"The emphasis has been on flexibility, re-routing cargoes, managing inventories, and coordinating across the system, rather than imposing controls."
A reputation to protect
Ahead of his trip to Canberra, Singapore's energy minister Tan See Leng said on Facebook he hoped "to strengthen our essential energy supplies nexus, especially important in these tumultuous times".
It followed a joint statement last month from Australian Prime Minister Anthony Albanese and Singapore's Prime Minister Lawrence Wong, committing to support the flow of oil and liquefied natural gas (LNG) between the countries, and to consult each other on any disruptions impacting trade.
"We call on other trading partners to join us in ensuring global energy supply chains are kept open, for the benefit of the security and prosperity of our peoples," they said.
The statement contrasted to decisions from South Korea — another major supplier for Australia — and China to restrict refined oil exports in response to the fuel crisis.
Professor Lee said Singapore appeared to be signalling the opposite instinct to countries halting or limiting exports, instead preserving trade flows where possible.
Meanwhile, the country imported Australian LNG for energy, and its government had flagged Australia's supplies could help replace disrupted Middle Eastern shipments.
But for Singapore, there was something other than energy supply at stake, Professor Lee said.
"From Singapore's perspective as a hub, the bigger issue is reputational as well as commercial," he said.
"The country's strategic value lies … in being a reliable aggregation, processing, storage, and redistribution node.
"If shocks start to impair that reliability, the issue is not just refinery profit, it is Singapore's role as a trusted regional platform."
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