Iran conflict could push up costs, govt’s fuel subsidy bill, say economists

2026-03-03 - 23:43

The movement of fuel out of the Gulf via the Strait of Hormuz, a narrow sea link used by many oil and gas tankers, is being threatened by a broadening of the war on Iran. (EPA Images pic) PETALING JAYA: Economists warn that any disruption to shipping activity in the Strait of Hormuz could drive up world oil and gas prices, leading to higher costs at home and swelling the government’s fuel subsidy bill. On Saturday, Iran began warning ships against passing through the strait following US and Israeli attacks. British and US maritime alerts, however, have stopped short of declaring an official shutdown, noting that the area has heavy military activity and advising vessels to proceed only with extreme caution. The narrow strait’s importance lies in its role as a vital sea lane through which much of the world’s oil and gas is shipped out of the Gulf. Any halt to shipping activity in the strait could tighten energy supplies and send prices surging. Afzanizam Abdul Rashid. Bank Muamalat chief economist Afzanizam Rashid said the immediate concern is how high crude oil prices would go and the sustainability of such price levels. “High prices would impact the budget, as the government would need to allocate more for fuel subsidies,” he said. Afzanizam also said markets tend to turn shaky in times of conflict, as investors pull out of riskier bets. Investors may shift into gold, which could push prices up, while the ringgit may move but is not likely to slide too far, he said. Yeah Kim Leng. Sunway University’s Yeah Kim Leng said the cascading price impact on transport, logistics, agriculture, mining and manufacturing and other energy-intensive industries would cause inflation to rise. He said Putrajaya may need to manage any rise in costs carefully as it phases out broad fuel subsidies, easing them gradually to avoid squeezing households or the wider economy. A short-term rise in government spending could help keep prices from rising too fast, Yeah said, as long as the budget deficit does not widen excessively. Fighting has escalated sharply since initial strikes were launched on Saturday, with Iran retaliating with missile barrages against US bases in the region, Israeli cities, and even oil tankers linked to Western nations. Regional powers, including the UAE, have called for de‐escalation, but the risk of a wider war remains high.