SINGAPORE - Singapore's strategy must be to stay open and make its economy stronger and more resilient, as the Russia-Ukraine conflict affects global trade and the cost of living, said Prime Minister Lee Hsien Loong on Sunday (May 1).

Russia's attack on Ukraine has also undermined the global order, which is bad especially for small states like Singapore, whose security and existence depend on the international rule of law, PM Lee said at the May Day rally .

As a result of global headwinds driving up energy prices, Singapore will take a hit of $8 billion a year, he added, citing estimates by the Ministry of Trade and Industry.

"That is 1.5 per cent of our GDP," PM Lee said. "That means we in Singapore have become collectively $8 billion poorer off per year, and there is no escape from this."

This is because Singapore imports nearly all its supplies of energy, except for the solar electricity that it generates itself, PM Lee said.

For example, when the oil price was around US$50 per barrel, Singapore's annual imports of crude oil and natural gas cost roughly $30 billion per year.

But when oil prices double to US$100 per barrel, as they have done in the last 16 months, Singapore has to pay double too, which means an extra $30 billion per year.

"We can recover part of this because some of it is transformed, we refine the oil, we make petrochemicals, we sell it overseas, and we charge more," he said. 

"But the rest we consume, we turn on the lights, we turn on the air-conditioner, we drive our cars, we have to bear that cost - Singapore households, businesses and the Government."

The war has worsened global inflation as Russia is a major exporter of oil and gas, and Ukraine is among the world's largest exporters of cereal crops and vegetable oils, he noted.

PM Lee added that the stakes in the crisis are also rising, as the war continues without a good outcome in sight.

"The US now says that its aim is to weaken Russia's military capabilities, to prevent Moscow from invading other countries in future," he said.

"On the other side, Russia now sees this not just as a fight in Ukraine, but a struggle against many Western countries... If the war spreads beyond Ukraine's borders, or unconventional weapons are used, no one will be able to control how the situation unfolds."

He added that even if a ceasefire can be negotiated, peace will still remain elusive.

"Most fundamentally, Russia's attack on Ukraine has undermined the global order: the basic rules and norms for how all countries, big or small, interact properly with one another," he said.

It is also a flagrant violation of the United Nations Charter, he noted, saying this is especially bad for small nations.

"That is why Singapore has taken a strong stand, condemned the attack and imposed targeted sanctions against Russia," he said.

This ongoing conflict has also made it very difficult, if not impossible, for countries to pursue win-win cooperation, whether at the UN, Group of 20 or Asia-Pacific Economic Cooperation levels, he added.

"In particular, it will further complicate US-China relations, which were already strained.  In the Asia-Pacific, jostling between the US and China will result in a less stable region."

This will also mean that globally, countries will be unable to make progress on many complex and urgent problems affecting all nations, such as the pandemic and climate change, he said.

Economically, the war will also affect the multilateral trading system, further pushing the trend of countries restricting trade and investments with other countries that they no longer trusted.

"Countries talked about 're-shoring' supply chains to boost self-sufficiency, or 'friend-shoring' to work only with trusted friends and allies. Now, with the war in Ukraine, these trends are going to be pushed even further," he said.

"Singapore's economy depends heavily on international trade and investment. If countries no longer accept the rules of free trade, that makes it harder for us to continue to attract investments, expand our export markets, grow our economy and earn our keep in the world."

The Government has given out support packages and the Monetary Authority of Singapore has tightened monetary policy, but inflation will remain high and global growth weaker, he added.

"The fundamental solution is to make ourselves more productive, transform our businesses and grow our economy to uplift everyone," he said.

"Then our incomes can go up and more than make up for the higher prices of energy and food. Then we can all become better off in real terms."

Internationally, Singapore will push back against deglobalisation, and speak up to encourage constructive engagement between the United States and China.

But ultimately, it depends on the major powers, he said.

"Our strategy can only be one - and that is to stay open, to make our economy stronger, more resilient, and to keep on seizing opportunities for growth, developing new capabilities and becoming a more competitive economy," he added. 

"Because if we do that, then despite the uncertain climate, despite the pressures against globalisation, investors will still find it worthwhile to put their projects in Singapore, our exports will still find foreign markets, and we can still earn a living for ourselves in the world."

Amid a challenging external environment, economic success alone is not enough, PM Lee said, as he underlined the need for society to stay cohesive.

"If Singaporeans are not strong and united, if we allow ourselves to become split and divided, we will be done for," he said.