Middle East turmoil may redirect energy trade to Malaysia

2026-03-15 - 23:43

Analysts say Malaysia’s position as a net energy exporter and a producer of crude oil and liquefied natural gas could allow it to benefit from shifts in trade patterns caused by the turmoil in the Middle East. (File pic) PETALING JAYA: Turmoil in the Middle East is beginning to reshape global energy flows, and analysts say Malaysia could emerge as an alternative supplier as buyers seek to avoid disruptions around the Strait of Hormuz. The latest conflict has brought the world to the brink of another oil shock after air strikes by the US and Israel on Iran on Feb 28 triggered retaliatory attacks across the region. Iran’s most consequential move has been to impose a de facto blockade on the Strait of Hormuz, a vital chokepoint through which around 20% to 30% of the world’s seaborne oil and liquefied natural gas shipments pass daily. The disruption sent crude oil prices surging to nearly US$120 per barrel before easing to about US$100 per barrel for Brent crude. While the spike has raised concerns globally, analysts say Malaysia’s position as a net energy exporter and a producer of crude oil and liquefied natural gas could allow it to benefit from shifts in trade patterns. Finance Minister II Amir Hamzah Azizan said Malaysia’s economic fundamentals provide the country with flexibility in managing the fallout from rising energy prices. Research houses broadly share that view. MBSB Research said higher oil prices would support fiscal revenues through stronger petroleum-related income. “The extra income can be utilised to cover higher subsidy burdens if the government decides to limit the increase in subsidised fuel prices,” it said in a note. The research house said a 10% increase in average oil prices could translate to an approximate 8.1% rise in Malaysian government petroleum-related revenue, on average. More significantly, it said geopolitical tensions could redirect energy trade towards producers outside the Middle East. MBSB said Malaysia could benefit from trade diversion as buyers look for alternative sources of supply to reduce exposure to shipping disruptions through the Strait of Hormuz. “As international buyers seek to mitigate their exposure to Middle Eastern supply disruptions, Malaysia’s oil becomes an alternative, likely driving a surge in export volumes. “This tailwind, which is the higher price, would significantly bolster Malaysia’s trade surplus,” it said. The research house added that higher demand for the ringgit alongside stronger government finances from Petronas dividends could also support the local currency. It said this creates “a strong fundamental basis for the ringgit to strengthen”, helping offset the imported inflation that typically accompanies global energy shocks. Geopolitical instability in the Middle East could also have spillover effects on other sectors of Malaysia’s economy. MBSB said previous crises in the region, such as during the Arab Spring, had led to increased tourist arrivals from Gulf countries. It said wealthy travellers from countries such as the United Arab Emirates and Saudi Arabia could reroute to Malaysia as a stable and Muslim-friendly destination, potentially boosting Visit Malaysia 2026. However, analysts caution that Malaysia is not immune if the conflict becomes prolonged. MBSB said a US-Iran conflict in 2026 could pose significant trade risks to Malaysia through indirect channels, particularly supply chain disruptions and secondary sanctions imposed by the US. “A prolonged conflict coupled with sustained impairment to Hormuz shipping lanes would represent a more systemic shock. “Oil prices could spike sharply beyond US$100 per barrel, while global financial markets may undergo a risk repricing, including equity market de-rating and tighter financial conditions,” it said. While higher oil prices may initially boost petroleum revenues, the broader economic impact could turn negative if global demand weakens. MBSB said surging energy costs and logistics disruptions could raise production costs for Malaysian manufacturers and slow export momentum. The research house also warned that higher energy prices tend to feed into broader inflationary pressures. Elevated fuel and food costs could erode household purchasing power and dampen consumer spending. Despite these risks, economists say Malaysia’s fuel subsidy system provides an important buffer for households. Bank Muamalat Malaysia chief economist Afzanizam Rashid said Malaysians are in a better position than many in the region because the government shields consumers from volatile global oil prices. “We are in a better position given our natural resources such as oil and gas have been well managed. The government provides subsidies to shield the people from the impact of gyrations in crude oil prices,” he told FMT. Under the government’s BUDI 95 subsidy programme for RON95 petrol, Malaysia has the second lowest petrol price in Asean at RM1.99 per litre, with Brunei the lowest at RM1.65. In contrast, petrol prices in the region are significantly higher, including Singapore at RM9.81 per litre, Laos at RM6.98, Thailand at RM5.19, Cambodia at RM5.18, Vietnam at RM4.43, the Philippines at RM3.78, Myanmar at RM3.30 and Indonesia at RM2.88. Afzanizam noted that the government recently raised the price of unsubsidised RON95 to RM3.27 per litre from RM2.67 earlier this year. “Hence, the difference with the subsidised price of RM1.99 per litre is huge, which means government expenditure on petroleum subsidies is also rising,” he said. He pointed out that petroleum subsidies totalled RM23.1 billion in 2022 when the average Brent crude price stood at US$99 per barrel. In 2024, subsidies amounted to RM19.7 billion even though the average Brent crude price had fallen to US$79.9 per barrel. While the current crisis may redirect some global energy trade towards producers like Malaysia, economists say the country’s fortunes will ultimately depend on how long the conflict lasts and how severely global supply chains are disrupted.