Let’s not toast rise in earnings yet, says economist

2026-03-26 - 02:51

Higher global oil prices have already translated into higher domestic fuel costs despite Malaysia having its own energy sources. PETALING JAYA: An economist has cautioned against celebrating any increase in revenue for Malaysia resulting from the rise in crude oil prices globally. Lee Heng Guie, executive director at the Socio-Economic Research Centre, pointed out that while Malaysia continues to produce and export crude oil, it has been a net oil importer since 2022, thanks to declining domestic production and rising consumption. “This means higher global oil prices can still translate into higher domestic fuel costs despite Malaysia’s energy resources,” Lee told FMT. The ongoing conflicts in the Middle East and West Asia have pushed the price of Brent crude up from US$80 to more than US$100 per barrel in recent weeks. It settled at US$96.27 on Wednesday. Lee also warned that intensified geopolitical conflicts in the Middle East could heighten inflationary pressure. He noted that historically, Malaysia’s inflation rate hovered between 2% and 3% annually, but oil shocks caused by wars in the Middle East led to “notable deviations above this range”. In the first oil shock in 1973 and 1974, the inflation rate in Malaysia surged to 13.9%. When the Shah of Iran was ousted in an Islamic revolution in 1979, the inflation rate went up to 5.1%. This rose further to 8.2% during the Iran-Iraq war from 1980 to 1988. Lee said the increases in the inflation rate were driven largely by soaring global oil prices, rising import costs, and higher prices for industrial raw materials. He said the impact of the current surge in oil prices would depend on the magnitude of the increase and the duration of supply disruptions. Higher global oil prices have already translated into higher domestic fuel costs despite Malaysia having its own energy sources. From March 11, prices at the pump rose by RM1.20 from RM2.67 to RM3.87 for unsubsidised RON95. The price of diesel is up RM2.40 from RM3.12 to RM5.52, and that for RON97 is now at RM5.15 from RM3.25, an increase of RM1.90. Lee also warned that if the price of Brent crude remains elevated, the government may eventually need to review subsidies, including the fixed RON95 price or the 300-litre quota. He added that fuel prices are unlikely to fall significantly unless global crude price drops sharply. Weekly fuel price adjustments will continue to reflect crude oil price, exchange rates, and refined fuel benchmarks. “I don’t think it will fall unless the oil price goes back to US$70 or US$60 (per barrel). It will still stay elevated,” he added. For another economist, Geoffrey Williams, the question is whether the current subsidy approach is sustainable in the face of volatile global conditions. “The challenges show that the current subsidy design is not robust enough to (withstand) external shocks. Insisting on keeping the price of RON95 at RM1.99 under the BUDI95 scheme is a political stance that will push up the subsidy bill and wipe out savings already made,” he told FMT. He added that the government may eventually be forced to adjust subsidised fuel prices, saying money spent on petrol subsidies could be better directed towards cash transfers or other priorities.