Malaysia can avoid Iran war’s immediate economic shocks, say economists

2026-03-14 - 23:44

Malaysians may have to brave higher prices for goods and services, and possibly even an electricity tariffs hike if the Iran conflict extends beyond May. PETALING JAYA: Malaysia can avoid the immediate economic shocks from rising oil prices triggered by the Iran war, economists say, although an increase in living costs is likely if the conflict prolongs. Yeah Kim Leng of Sunway University said the economic impact on Malaysia is likely to be gradual as the government’s fuel subsidies will cushion the initial shock. Yeah Kim Leng. In the past, an increase in petrol prices would see operational costs passed down to consumers. “As long as RON95 petrol does not increase from its current RM1.99 per litre price, the immediate impact will remain low,” he told FMT, referring to the subsidised rate under the Madani government’s BUDI95 initiative. On Wednesday, Prime Minister Anwar Ibrahim said the government will retain the scheme’s RM1.99 per litre pump price, saying it had sufficient fuel supply to maintain the subsidised price until at least May. However, Yeah warned that if the conflict extends beyond May, Malaysians could see higher prices for goods and services, and possibly even an electricity tariffs hike. Yeah said freight and insurance costs have already risen after Brent crude climbed to about US$100 per barrel, which will eventually make imports more expensive and affect the domestic economy. “The concern is if supply shortages emerge. That could lead to hoarding and sharp price increases which would directly impact households. At this juncture, however, Malaysia’s supply chains remain resilient,” he said. On March 12, the International Energy Agency said the Middle East war had caused the “largest supply disruption in the history of the global oil market,” with global supply expected to drop by eight million barrels per day in March due to the blocking of the Strait of Hormuz. Yeah said the immediate impact on Malaysia would likely remain limited until May unless oil prices surge to around US$120 per barrel, which could severely affect the global economy as prices of goods rise. He also warned of a ripple effect. As a trade dependent country, Malaysia could face weaker demand if businesses and consumers cut spending due to higher costs, he added. “Production could be cut back across various industries, including transport and other energy-intensive sectors (as consumption drops),” he said, adding that the number of tourists visiting Malaysia could dwindle due to higher travel costs, which will impact the local tourism industry. Barjoyai Bardai. Barjoyai Bardai, provost at Malaysia University of Science and Technology, said poor households are likely to feel the squeeze in transport costs, food prices and overall living expenses as businesses pass on higher logistics and packaging costs. “Transport services are usually the first to respond during global conflicts because logistics and fuel-linked operations adjust quickly (to the new prices),” he told FMT. Barjoyai said food prices could rise even though Malaysia imports much of its food from Asean countries, as freight, energy and fertiliser costs are globally priced. Ahmed Razman Abdul Latiff. Similarly, the price of wheat, flour, maize, animal feed and edible oils — commodities tied to the global market — will likely increase. However, Ahmed Razman Abdul Latiff of Putra Business School does not think the Middle East crisis will push Malaysia’s inflation — currently at 1.6% — higher, even if it persists for another two months. Malaysia, he said, was among the few countries with extensive price controls on essential goods, allowing the government to help contain inflation through price control mechanisms.