18/03/2026

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WEDNESDAY | MAR 18, 2026

Oil surge could bring windfall in short term but risks remain

KUALA LUMPUR: Malaysia’s gross domestic product (GDP) growth is pro jected to moderate to between 3.8% and 4.2% this year should the Middle East conflict escalate and significantly disrupt global energy and shipping flows, according to the Federation of Malaysian Manufacturing (FMM). FMM president Datuk Jacob Lee Chor Kok said growth could be sustained at about 4.7% if the conflict remains contained. However, pro longed disruptions would introduce material downside risks. “Under a contained scenario, GDP growth is expected at 4.7%. Should the conflict expand, growth may ease between 3.8% and 4.2%. In a more adverse scenario, Malaysia’s fiscal deficit could widen to 3.7% of GDP,” he said at the FMM Business Conditions Survey Second Half 2025 media briefing yesterday. Lee characterised the overall risk environment as moderate but man ageable, noting that elevated energy prices, freight costs and supply chain disruptions are likely to increase production and logistics costs for manufacturers. Manufacturing sector stabilised in H2’25, improvement seen in first half this year KUALA LUMPUR: Malaysia’s manufactur ing sector stabilised in the second half of 2025 (H2’25) following earlier weakness, with gradual improvement ex-pected in the first half of 2026 (H1’26), according to the Federation of Malaysian Manufacturing (FMM). President Jacob Lee Chor Kok said production and capacity utilisation rebounded modestly, indicating im proving operating conditions, although demand remained uneven. “Local and export sales improved but remained below the neutral threshold (100), indicating continued demand weakness,” he said at the FMM Business Conditions Survey for Second Half 2025 media briefing here yesterday. He said cost pressures remain elevated despite moderating from earlier peaks, while capital investment edged slightly higher and employment remained broadly stable, reflecting cautious business sentiment. On revenue, Lee noted that ex pectations remain moderately positive, with nearly half of the companies anticipating higher sales. The survey, now in its 28th edition, was conducted between Jan 12 and Feb 27, covering 631 respondents nationwide across 15 manufacturing sub-sectors. According to the survey, the business activity index rebounded to 103 in H2’25 from 77 in the first half, signalling stabilisation, although expansion re mained moderate. Looking ahead, the index is projected at 104 in H1’26, with revenue ex pectations moderately positive but profit outlook remaining mixed amid persistent cost pressures. – Bernama Ű BY HAYATUN RAZAK sunbiz@thesundaily.com

these circumstances to raise prices, which could affect goods and services, so regulatory monitoring is essential”. All three experts agree that while Malaysia may enjoy a short-term fiscal boost, broader economic risks are present. Afzanizam noted that prolonged tensions in the Middle East could dampen global growth, affecting key trading partners such as China, India, South Korea, and Japan, and impacting logistics sectors such as maritime shipping and aviation. The economists also highlighted the balance between revenue gains and inflationary risks. Controlled subsidies and a strong ringgit provide short-term insulation, but sustained higher oil prices could eventually pressure public finances and fuel costs if conflicts persist or domestic policy fails to adapt. “Malaysia is in a better position than most to accommodate the current tensions,” Williams said, “but if the conflict is prolonged, there will have to be a re-evaluation.” With Middle East oil supplies remaining fragile and crude prices elevated, Malaysia faces a window of opportunity to strengthen govern ment coffers, but careful monitoring of subsidies, inflation and global economic ripple effects will be crucial in turning temporary gains into sustainable economic stability.

KUALA LUMPUR: Rising geo political tensions in the Middle East are keeping global oil prices elevated, offering Malaysia a potential short-term fiscal windfall. Recent disruptions in the Strait of Hormuz, a key oil shipping route, have triggered a surge in crude prices, with Brent crude hovering between US$90 and US$100 (RM352 and RM392) per barrel. “The release of global oil reserves will cover around 20 days of the oil currently blocked in the Strait of Hormuz. This should keep oil prices in the US$90-100 per barrel range for the next two to three weeks,” said economist Dr Geoffrey Williams. For Malaysia, higher crude prices could translate into sub stantial government revenue. Williams estimated that if oil prices remain around US$90-100 per barrel, Petroliam Nasional Bhd’s (Petronas) dividend and royalty payments to the govern-ment could reach RM50-60 billion, compared with RM37 billion last year. While these figures are en couraging, he stressed that Malaysia is better positioned than many countries to weather the conflict in the short term, thanks to domestic subsidies and a strong ringgit, which help control inflationary pressures. Ű BY DEEPALAKSHMI MANICKAM sunbiz@thesundaily.com

o Close monitoring of subsidies, inflation and ripple effects from Middle East conflict crucial in turning temporary gains for Malaysia into sustainable economic stability: Experts

obligations, especially where fuel pricing remains politically sensitive.” Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid provided further context on Malaysia’s structural position. He explained that the country’s trade balance in oil and gas remains positive, with a surplus of RM18.2 billion last year, compared with RM13.1 billion in 2024, thanks to liquefied natural gas and refined petroleum exports. “Malaysia is not entirely sus ceptible to gyrations in oil prices except for imported fuel for domestic consumption, where any change in international crude prices will directly affect the import bill and subsidy expenditure,” he said. Afzanizam emphasised that Malaysia’s targeted subsidy system, such as MyKad under the BUDI 95 scheme, helps minimise inflationary pressures by directing aid to eligible citizens while excluding non Malaysians and large corporations. However, he warned that “irres ponsible businesses might exploit

He added that if the conflict eases as expected, oil prices could moderate, though the situation remains volatile. The Center for Market Education CEO Carmelo Ferlito echoed the revenue potential but offered a more nuanced view. He noted that petroleum-related revenues, including dividends from Petronas, petroleum income tax, export duties and royalties, remain a meaningful part of government income, but their contribution has declined over the decades. “The upside should not be overstated: today Malaysia is less dependent on oil revenue than in previous decades, and the country is simultaneously a fuel-consuming economy exposed to a very expensive subsidy bill.” Ferlito also highlighted that the government’s fiscal sensitivity to oil prices remains significant. “Higher than-expected oil prices can improve fiscal space in the short term, but they also create pressure because the government still carries subsidy

FMM: Malaysia’s growth could ease to 3.8-4.2% if Mideast war escalates

He added that the latest Pur chasing Managers’ Index reading of 49.3 signals a mild contraction, with the index potentially softening further to the 48-49 range if logistical disruptions persist. On currency outlook, Lee said the ringgit is currently trading between 3.91 and 3.97 against the US dollar and is expected to remain within 3.85 to 4.10. As for equities, he noted that Bursa Malaysia’s benchmark FBM KLCI has experienced only marginal declines. Despite rising cost pressures, Lee said, business activity has not been significantly disrupted, with manu facturers continuing to receive orders. “While the impact has not been immediately apparent, cost pressures are increasing across logistics, insurance, freight and energy. As a result, firms are accelerating procurement and locking in contracts early to mitigate further price increases.” He highlighted that the impact is more pronounced in sectors with high material exposure, particularly con struction, where prices of steel, aluminium and copper are rising. Early cost pressures are also emerging in the electrical and electronics and chemical sectors.

Lee speaking during a press conference on the FMM Business Conditions Survey Second Half 2025 at Wisma FMM yesterday. On the right is Soh. – BERNAMAPIC

gested that the National Economic Action Council assess the need for targeted measures, including a potential six-month loan moratorium. However, Lee expressed a cautious stance on such interventions, noting that current conditions differ materially from the Covid-19 crisis. “During the pandemic, economic activity was largely halted, necessitating crisis-level interventions. At present, businesses remain operational, and income flows continue. The case for a moratorium is therefore less immediate.”

share of global energy exports and supplies approximately one-third of the world’s seaborne fertiliser, much of which transits through the Strait of Hormuz. “Any prolonged disruption could lead to significant increases in fertiliser prices, which would in turn raise domestic food production costs,” he said, adding that Malaysia imports close to RM80 billion worth of food annually. He called for proactive policy support, particularly for micro, small and medium enterprises, and sug

FMM president emeritus Tan Sri Soh Thian Lai said that while demand conditions remain relatively stable, industry sentiment has turned more cautious amid global uncertainties. “Industry players are increasingly concerned about potential volatility in energy and food prices, and the broader implications for global business activity.” Soh said Malaysia’s reliance on Middle Eastern energy and fertiliser supplies could amplify cost pressures. The region accounts for a substantial