The Ripple Effects of Conflict Shocks, Rising Costs, and Singapore’s Sector Response

The Middle East conflict has crystallised into a systemic geopolitical risk, contributing to renewed inflationary pressures, supply‑chain disruption, and premium volatility across global insurance markets. Estimated physical damage and repair costs across affected Middle East energy and infrastructure assets are projected at approximately USD 58 billion, placing pressure on insurer reserves and reinsurance capacity.

For contractors in Singapore, margins are increasingly strained by transmission effects rather than direct exposure to the conflict, including energy price volatility, elevated diesel and bitumen input costs, and continued escalation in imported materials. As reinsurers tighten capacity and premiums harden across marine and aviation lines, Singapore’s construction sector faces a dual challenge: rising delivery costs and increasingly constrained risk‑transfer options. Regulatory cost‑sharing measures offer partial and temporary relief; longer‑term resilience will depend on disciplined cost records, defensible claims, and timely notification of contractual and policy entitlements.

Conflict Risk and Energy Markets

The Strait of Hormuz has emerged as a focal point of geopolitical risk, prompting material contraction in war‑risk capacity and sharp increases in premiums, notwithstanding the absence of sustained physical closure to date. Exxon Mobil’s suspension of approximately six percent of its regional first‑quarter production, together with reports of more than forty damaged or offline energy assets across the region, underscores the scale of operational disruption. Aggregate physical repair and reinstatement costs across affected Middle East assets are projected at approximately USD 58 billion, signalling sustained strain on global energy and construction supply chains.

LNG deliveries remain approximately 10 percent lower year‑on‑year, bitumen prices continue to escalate across Asia, and spot and contract diesel prices for construction and transport users in Singapore briefly approached SGD 4.42-4.68 per litre, sustaining elevated cost pressures across construction and transport markets despite intermittent softening in crude benchmarks.

Industry Reports – April 2026

Analysts increasingly characterise the conflict as a systemic shock. Property insurers face inflation‑driven claims escalation; marine insurers have tightened war‑risk definitions; and aviation insurers have raised hull and liability premiums. Business interruption notifications are rising, although recovery remains constrained by policy exclusions, indemnity limitations, and stringent evidentiary requirements. Insurers are applying heightened scrutiny to causation, mitigation measures, and financial methodologies, with materially different outcomes observed depending on whether policies adopt gross earnings or gross profits approaches.

Global growth is expected to contract by one to two percentage points, while inflation is projected to rise by two to three. Insurers’ reserves and underwriting performance are directly impaired, challenging sector stability.

Macro‑Economic Trends – Singapore

Singapore’s inflation trajectory has steepened, with headline inflation rising to approximately 1.8 percent in March 2026, the highest level recorded since late 2024. Core inflation reached 1.7 percent, driven by persistent cost pressures beyond fuel. MAS has revised its forecast upward to 1.5-2.5 percent for both headline and core inflation, citing imported energy volatility.

The SORA borrowing benchmark fell from above three percent in early 2025 to 1.0-1.2 percent in early 2026, offering temporary relief for contractors reliant on project financing. Rates are expected to rebound to around 1.4 percent by year‑end.

For construction, this window provides temporary financing relief; however, ongoing inflation in fuel, steel, and imported materials continues to erode margins. For insurers, lower yields have reduced investment income, weakening reserves at a time of escalating reinstatement and claims severity. Both sectors face a dual squeeze: contractors from escalating costs, insurers from eroded reserves.

Global Insurance and Reinsurance Market Conditions

Geopolitical risks are driving higher claims across speciality lines. Property exposures in affected regions, along with commodity and supply chain disruptions, are driving increased notifications. Operational impacts persist across multiple industries, with business interruption and delay‑in‑startup exposures extending well beyond the immediate conflict zones. The success of such claims will hinge on the fine print of coverage limits, policy wording, indemnity periods, and exclusions. A clear grasp of policy coverage, business interruption methodologies, delay measurement, and evidentiary requirements is crucial for efficient claims resolution.

Most commercial property policies exclude war losses, and standalone war risk cover for buildings is generally unavailable. Physical damage in conflict zones is therefore largely uninsured. Where policies do respond, reinstatement claims encompass manpower, plant, equipment, materials, and preliminaries, with added consideration for supply chain constraints and extended lead times.

Singapore Sector Impacts

Singapore’s construction industry is absorbing the full weight of escalation. Labour costs have risen as supply tightens, steel prices continue to climb, and elevated fuel costs strain diesel‑dependent trades. Imported materials face delays and surcharges, pressuring project schedules and budgets.

On 7 April 2026, the Building and Construction Authority (BCA) announced a 50‑percent ex‑gratia cost‑sharing arrangement for eligible public sector projects affected by diesel and bitumen escalation. Covering 1 March to 31 May 2026, the scheme provides partial relief but requires contractors to consolidate usage data and ensure payments cascade through the supply chain.

Survey data from the Singapore Business Federation confirms two‑thirds of firms are under moderate to severe strain, with SMEs most exposed to rising energy and freight costs, weaker demand, and limited risk‑transfer options.

Singapore Standard Forms of Contract

Under Singapore’s Standard Forms of Contract, including PSSCOC and SIA Conditions, entitlement to recover rising costs is primarily addressed through variation provisions and escalation clauses where expressly included. Increases in steel and fuel prices, together with delays in imported materials and associated disruption, may give rise to claims where contractual price‑adjustment mechanisms or variation provisions apply. Regulatory measures, such as the BCA’s ex‑gratia cost‑sharing scheme, complement contractual pathways by offering partial relief, but their effectiveness hinges on contractors’ ability to consolidate usage data and cascade recovery through the supply chain.

Entitlement depends on strict compliance with notice requirements and evidentiary standards. Contractors must maintain contemporaneous records of progress, labour, material, and fuel usage, supported by escalation indices and defensible benchmarking, to substantiate claims for reimbursement or extensions of time. Robust documentation and disciplined claim preparation are essential to securing fair outcomes, keeping contractual rights defensible and aligned with regulatory support amid market volatility.

Strategic Implications

For insurers, the conflict represents a systemic risk event that challenges underwriting stability. Property, marine, and aviation lines must recalibrate to heightened exposure, while inflation erodes reserves. Premium volatility and capacity constraints are rising across specialty classes, while supply chain disruptions inflate property claims.

For contractors in Singapore, resilience depends on precise cost data, escalation indices, and contemporaneous records. Regulatory support offers temporary relief, but long‑term sustainability requires disciplined claims preparation and negotiation. With reinsurers tightening terms and deploying selective capacity, contractors must present defensible, evidence-based claims to secure recovery.

Conclusion

The Middle East conflict has reshaped insurance markets into a landscape of heightened risk, where property, marine, and aviation insurers must navigate volatility with caution. Singapore’s construction sector, though burdened by rising costs, has responded with targeted regulatory support to ease the immediate impact of diesel and bitumen escalation.

These risks are systemic, not isolated. Inflationary pressures, supply chain disruption, and underwriting volatility will continue to define the landscape. Looking ahead, resilience will rest on disciplined compliance with policy notice obligations, rigorous claims preparation, and defensible benchmarking. Meticulous contemporaneous recordkeeping will remain the cornerstone of entitlement, ensuring disruption and additional costs are substantiated with precision and withstand scrutiny in the negotiation and resolution of claims.

Clarity, evidence, and consistency are not merely operational necessities but strategic imperatives. They will determine the ability of insurers, contractors, and stakeholders to secure fair outcomes and sustain stability in an era of geopolitical uncertainty.

About the author

​​Andrew Merrilees is a Chartered Quantity Surveyor with over 30 years of experience. He has been appointed as a quantum and delay expert on more than 15 occasions.

Andrew has testified in arbitration, litigation, mediation, adjudication, and provided support to dispute boards under the rules of SIAC, AIAC, HKIAC, DIAC, LCIA, and the courts. He has produced expert reports for disputes with values of up to $500 million.

Andrew specialises in expert witness and dispute avoidance involving complex claims and disputes across the construction, engineering and insurance industries. He has particular expertise in delay and disruption and quantum matters of loss and expense.

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