KUCHING: Higher crude prices could force tough subsidy choices even as the ringgit holds firm.
Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid said the closure of the Straits of Hormuz and the closure of airspace in the Middle East could disrupt international trade and raise costs.
“Fuel prices are the most immediate channel because Malaysia sources its fuel from abroad although the impact on consumers can be muted as the government has been subsidising citizens.
“However, higher crude oil prices would mean government expenditure on fuel subsidies would rise and policymakers may need to weigh whether to rationalise subsidies further,” he told Sarawak Tribune.
If subsidies are reduced, he stressed that it could affect the inflation rate.
He also pointed to trade disruption risks if the Straits of Hormuz is closed and Middle East airspace restrictions persist as businesses may need to reroute shipments, adding cost and time that could be passed on to consumers.
“Exports via sea and air accounted for 45.2 per cent and 40.5 per cent of total exports in 2025 while imports via sea and air accounted for 50.6 per cent and 37.5 per cent respectively.
“Another channel is gas prices, which form part of the energy mix for electricity.
“Based on the latest data from Tenaga, gas accounted for 33.6 per cent of the total energy mix in 2025 so it could be reflected in the electricity bill.”
On the currency, Afzanizam said a stronger ringgit improves purchasing power, noting that the ringgit against the US dollar has been resilient at RM3.9262 as of today.
He said this represented a 13.7 per cent appreciation against the US dollar compared with the same period last year, when it stood at RM4.4650 on March 3, 2025.
“If the subsidised price is maintained at RM1.99 per litre, Malaysia can expect the inflation rate to remain fairly stable.”
Recently, Prime Minister Datuk Seri Anwar Ibrahim said the government will try to maintain the price of RON95 petrol for Malaysians at RM1.99 per litre despite global market uncertainty linked to the Middle East conflict.
Anwar, who is also the Finance Minister, said the increase in global oil prices following Strait of Hormuz disruptions is expected to affect the country but the government is determined to hold the subsidised RON95 price under the Budi Madani RON95 (Budi95) programme.
He said the government will give the maximum effort to hold off on raising prices but added that the market is beyond its control and it cannot guarantee there will not be any price increase.
