According to the Straits Times, electricity plans in Singapore have increased by over 11% in the past few weeks, as oil prices have started to spike. To understand the reason behind the spike in oil prices, we would have to understand the situation around the Strait of Hormuz, which is the critical route for the global trade of oil.
The Strait of Hormuz is one of the most important oil transit chokepoints in the world. It is a narrow waterway that connects the Persian Gulf, where many of the world’s largest oil producers are located, to the open ocean. Major oil-exporting countries such as Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, and Iran rely heavily on this route to ship their oil to global markets.
Approximately one-fifth of the world’s oil supply passes through the strait each day. Because of its narrow geography and limited alternative routes, any disruption in this area can significantly affect the global supply of oil. As a result, the Strait of Hormuz plays a crucial role in maintaining stable oil prices worldwide.
As of late, the Strait of Hormuz has become a higher-risk area for commercial shipping. Although it remains open, there have been reports of safety incidents involving vessels, along with an increased presence of military and security forces. These developments have made the route more unpredictable.
With the Strait Of Hormuz being an increasingly risky route to navigate for oil transportation, several actions have been taken by companies which have made transporting oil more expensive.
Due to recent instability, these premiums have risen significantly. For example, insurance costs can increase from around 0.05% of a ship’s value to 0.5% or more per voyage. For a large oil tanker worth about $100 million, this means costs can rise from roughly $50,000 to over $500,000 for a single trip.
In addition, shipping companies may face extra expenses such as enhanced security measures or longer routes. Some insurers may even limit or refuse coverage, further constraining shipping activity.
The increase in insurance and transportation costs raises the overall cost of delivering oil. These additional costs are typically passed on to buyers, contributing to higher global oil prices.
Moreover, rising insurance premiums act as a signal of increased risk in the market. Even without a complete disruption of supply, the expectation of danger can cause traders to bid up prices. This “risk premium” becomes embedded in the price of oil.
The increase in insurance and transportation costs raises the overall cost of delivering oil. These additional costs are typically passed on to buyers, contributing to higher global oil prices
Rising insurance premiums also signal increased geopolitical risk.
Even without a full disruption of supply, the expectation of danger can lead traders to bid up oil prices. This “risk premium” becomes embedded in the market price of oil.
At first glance, Singapore generates most of its electricity using natural gas rather than oil. However, electricity prices remain closely linked to oil markets through several indirect mechanisms.
One key linkage is LNG pricing. Many LNG contracts in Asia are indexed to Brent crude, meaning that when oil prices rise, LNG prices tend to follow. Since natural gas is Singapore’s primary generation fuel, higher LNG prices translate directly into higher electricity costs.
In addition, regulated electricity tariffs are influenced by the Energy Market Authority’s (EMA) vesting contract framework. The Vesting Contract Price (VCP), which reflects the long-run marginal cost of efficient generation, incorporates fuel cost assumptions tied to global energy benchmarks, including Brent-linked proxies.
As fuel prices increase, the VCP rises, feeding into higher SP tariffs for households and small businesses.
While contestable consumers are priced based on generation costs such as SRMC and LRMC, these are still driven by LNG prices. As a result, rising oil prices continue to push electricity prices higher across Singapore’s entire power market.
Beyond the linkage between oil and electricity prices, there is a more significant and often overlooked risk—actual physical disruption of fuel supply.
A recent example highlights this clearly. Shell declared force majeure on Qatari LNG cargoes, as reported by The Straits Times.
This development underscores an important point. Electricity prices in Singapore are not only affected by gradual increases in oil or gas prices, but are also exposed to sudden disruptions in the physical supply of fuel.
If LNG shipments through critical routes such as the Strait of Hormuz are disrupted, Singapore may be forced to source gas from alternative suppliers. These replacement cargos are often more expensive, both because they originate from further locations and because they involve higher transportation and logistics costs.
In addition, substitute LNG supplies may be priced using different benchmarks. Instead of long-term oil-linked contracts, these cargos are often tied to spot or alternative indices such as the Japan-Korea Marker (JKM), which reflects spot LNG prices in Asia, or Henry Hub in the United States, with additional costs for liquefaction and shipping.
As a result, electricity prices are not only influenced by fuel price movements, but can also experience sharp and unpredictable increases when supply disruptions occur. This introduces a layer of volatility that goes beyond traditional oil-linked pricing dynamics.
Solar homeowners stand to gain from the spike in recent electricity prices, mainly due to increase in export rates.
As electricity prices rise, export rates—whether linked to USEP or regulated tariffs—also increase. This means solar system owners can benefit not only from self-consumption savings but also from higher value when exporting excess generation back to the grid.
Solar is no longer just about reducing electricity bills. It is increasingly a way to manage energy risk, gain price certainty, and reduce exposure to global fuel and supply shocks. As electricity prices become more volatile, solar becomes a strategic long-term decision for both homeowners and businesses.
In a world where energy prices can shift unexpectedly, having greater control over how you power your home or business is becoming increasingly valuable. While global energy markets will always experience fluctuations, there are ways to reduce your exposure to these changes and plan with more confidence.
If you happen to live in a landed home, solar energy could offer a practical, long-term solution. By generating your own electricity, you can rely less on external supply conditions and move toward more stable, predictable energy costs over time. It’s not about reacting to short-term events, but about making a considered decision that supports your future energy needs.
If you’re looking for a way to take a more proactive approach to energy—one that prioritises stability, sustainability, and independence—solar is definitely worth exploring.
