Explainer
Why shopping for food, clothes and toys in S’pore may get more expensive as oil prices rise
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Oil plays a role in the manufacturing of common consumer items - particularly those that require plastics - such as toys, computers and kitchenware.
PHOTO: REUTERS
SINGAPORE - While crude oil is known as the planet’s chief pollutant, the thick black liquid continues to power the bulk of transport worldwide and remains deeply embedded as the primary input in the production of a vast array of goods.
Besides being a key source of fuel for cars, ships and planes, oil plays a role in the manufacturing of common consumer items – particularly those that require plastics – such as toys, computers and kitchenware.
Food prices are not spared either because energy drawn from crude oil is needed in the agricultural process, including for the production of fertiliser.
And that is why, as international oil-price benchmarks rise amid the conflict in the Middle East, policymakers worldwide, including those in Singapore, worry they may have to manage not just higher energy costs but eventually a resurgence of inflation
Brent oil, one of the key global benchmarks, continues to trade at around US$80 a barrel, up about US$20 from 2025 and about US$10 higher than the price before the US and Israel started their military campaign against Iran.
At the heart of the oil price rally are concerns over the safety of navigation through the Strait of Hormuz – a narrow waterway connecting the Persian Gulf in the Middle East to the Indian Ocean.
The strait is the lifeline for many Asian and European economies as it supplies a fifth of the world’s oil and large volumes of liquefied natural gas (LNG) – the preferred fuel of Singapore’s power plants.
Traffic in Hormuz has slowed to a trickle after at least 10 petroleum tankers were hit in the last few days by projectiles as they passed through it.
Petrol prices have already started to rise in major importing nations worldwide, including Singapore, as petroleum supplies from the region feed directly into the production of transport fuels.
But, as energy costs rise, everything from food to electricity will become pricier. And if shipping through Hormuz remains constrained and keeps oil prices elevated for long, overall inflation will start to bump up.
Economists call this a negative supply shock, which makes production more expensive. Companies can absorb higher costs or pass them on to consumers. In practice, they usually do a combination of both.
The hit to consumption of goods and services – and companies’ profit margins – can also put a drag on economic growth and hiring. Hence, the stakes are high.
The Straits Times examines the industries and consumer goods that will get affected sooner or later by higher costs of fossil fuels and their derivatives.
Fuel for vehicles, ships and planes
Crude oil is the base raw material for the production of all transport fuels, including petrol, diesel, marine fuel and jet fuel.
About 825 active crude oil refineries dotted around the world process tens of millions of barrels a day – with each barrel representing 159 litres of crude – into fuels that power more than 1.4 billion cars and light trucks worldwide.
Even as electric vehicle adoption is accelerating, nearly 90 per cent of all vehicles plying Singapore roads have internal combustion engines that use petrol or diesel.
When it comes to ships and aircraft, both civilian and military, virtually all use marine and jet fuels supplied by oil refineries. Alternative fuels, such as those made from hydrogen, and sustainable aviation fuels, have yet to rise to claim a meaningful share in global output.
Utility bills for electricity and gas
Power plants fuelled by fossil fuels, such as oil and natural gas, will soon face pressure on their profit margins from higher prices of both commodities.
Electricity market pricing structures often tie tariffs directly to fuel costs. When oil or gas prices increase, it directly raises the cost of operating power plants, which is passed on to consumers.
In Singapore, more than 90 per cent of power generation comes from LNG, and the Persian Gulf state of Qatar, the world’s top LNG exporter, has reduced production after its Ras Laffan LNG complex came under attack earlier this week.
Most countries, including Singapore, have arrangements in place to fill in temporary gaps in LNG supply. But if shipping of the fuel remains constrained for long, Singapore may have to tap alternative supplies, which would be costlier.
Food and agriculture products
As the cost of road, rail and seaborne transport rises, food prices will follow suit because of higher transportation costs and fertiliser prices.
The food industry is also highly sensitive to oil prices because petroleum is required at every stage of the supply chain.
Massive amounts of oil and natural gas are used to produce fertilisers and pesticides. Meanwhile, agricultural machinery used for irrigation, planting, harvesting and processing is predominantly fuel-dependent.
Materials used in greenhouses are also made of derivatives of crude oil, such as petrochemicals.
Clothing, rubber and make-up
Crude oil is a primary ingredient in petrochemicals, which are used to manufacture a vast array of consumer goods – plastics, rubber, textiles and cosmetics.
Singapore has a large speciality chemicals industry, which contributes about a fifth of the Republic’s manufacturing output and about 3 per cent of gross domestic product. The sector employs more than 27,000 people.
Petrochemicals directly feed into making synthetic fibres like polyester, nylon and acrylic, which are used in clothing, carpets and high-performance sportswear sold by the fashion and textile industry.
Cosmetic items like shampoos, hand creams and make-up rely heavily on oil-based ingredients. Plastics derived from petrochemicals are also central to the packaging – containers and bottles – of beauty products.
Plastic products: Packaging, toys, kitchenware and more
The bulk of petrochemicals is used to make plastics – which refer to a wide variety of polymeric materials used by many industries.
Some key areas with heavy plastic usage are:
Packaging: The largest single consumer of plastics globally is the packaging industry, which accounts for as much as 40 per cent of all plastic use, producing items such as beverage bottles, food containers, plastic wraps, grocery bags and bubble wrap.
Construction: Plumbing pipes, window frames, insulation foam, flooring and roofing materials are made of plastic.
Vehicles: Plastics are used in automotive manufacturing to reduce vehicle weight for better fuel efficiency. These include parts such as bumpers and dashboards. Other common but essential components are seat belts and interior upholstery.
Mobile phones, household appliances: The electrical and electronics industry uses plastics as insulation for copper wiring, and for the outer casings of phones, computers and household appliances.
Toys, sports gear, kitchen utensils: Many toys, furniture, sports equipment like helmets and rackets, and kitchenware – such as utensils and bowls – are also made of plastic. This is in addition to higher road transport and shipping costs from more expensive fuel. Many raw materials used in furniture production are made from plastics such as foam, adhesives, resins and plastics for mouldings and particleboards.
