From crisis to catalyst: using oil price hikes to push economic reform

 Economic crises often serve as a catalyst and a diagnostic tool, exposing the fragility of old systems and the urgency of the need for reform.

The conflict in the Middle East offers Malaysia an external shock that can be leveraged as a catalyst to break the inertia of structural reform.

The risks of oil price spikes and supply chain disruptions should not be met with more of the same blanket subsidies, protectionism and fiscal bleeding. Instead, they are the perfect catalyst to pivot Malaysia toward a more resilient, modern and equitable economic framework.

The most immediate pressure point is the RON95 subsidy. The Madani government has already begun significant and successful rationalisation but the oil price hike exposes system vulnerabilities. These can be a catalyst, providing the political cover to accelerate reforms to move away from subsidising consumption and toward subsidising transition.

Every ringgit saved from blanket fuel subsidies should be redirected into the national push for energy efficiency and renewables. We need to incentivise a new model for households and MSMEs not just to consume power but to save energy and petrol and move towards more sustainable consumption.

High energy costs should be the signal that finally pushes Malaysian industries to abandon low-value, energy-intensive processes in favour of more energy efficient business models.

Oil price hikes often translate to higher transport costs, which are now costing the government billions in subsidies that were meant to be saved.

The simplest way to reduce the subsidy bill is to reduce unnecessary travel. A formalised work-from-home (WFH) or hybrid framework is no longer a perk; it is a tool for macroeconomic and fiscal efficiency.

Reducing the daily commute lowers the demand for subsidised fuel, eases urban congestion and boosts productivity by reclaiming hours lost in traffic. This must be paired with MSME reform that encourages the use of “sharing platforms” allowing small businesses to share office spaces, logistics, and digital infrastructure rather than bearing high fixed overheads alone.

The current social safety net, while well-intentioned, is fragmented. The Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara) programmes are helpful but they remain hand-outs rather than sources of reliable income. We should use this period of reform to merge these aid programmes into a monthly universal basic income (UBI).

Converting lumpy cash transfers into a predictable monthly payment provides the B40 and M40 with a consumption floor. This doesn’t just alleviate poverty, it empowers people to take risks, to start a business or up-skill, knowing that their basic survival is not at the mercy of the next pre-holiday pay-out.

Parallel to this is the looming crisis of old-age poverty. With EPF balances depleted for many, the current system is a ticking time bomb. A universal basic pension (UBP), funded through the fiscal space created by removing fuel and electricity subsidies and a Malaysian superfund is a logical solution.

A non-contributory, tax-funded pension ensures that every Malaysian, regardless of their past employment status, has dignity in old age. This shifts the burden away from the shrinking workforce and places it on a more efficient, reformed fiscal system.

Malaysian policymakers have often preferred to wait out economic storms but the current global environment suggests storms are the new normal.

By linking subsidy rationalisation directly to the funding of a UBI and a UBP, the government can turn a painful reform into a popular social contract. Not just taking away cheap petrol but giving back a lifetime of financial security.

Malaysia should not just “manage” the Middle East crisis but should use it as an opportunity to retire the outdated economic ideas of the last century and build a new economic approach that is energy-efficient, digitally-driven, and most importantly, human-centric.

The current crisis provides the opportunity; now the government must have the courage to take it. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.