The crisis we have yet to feel

 The worst of the Iran war is yet to come, but Malaysia must make tough decisions now to prepare for an uncertain future.

From Dr Helmy Haja Mydin

If you paid RM1.99 at the pump, and a bit more at the supermarket today than yesterday but it didn’t bite too deeply to force you to cut back on your latte, you will be forgiven for assuming that Malaysia has weathered the worst of the energy crisis triggered by the Iran war.

The reality is we have not. The months ahead are likely to be harder than those behind us, and the government will need to make unpopular but unavoidable decisions.

Across the region, the Philippines has declared a national energy emergency and put government offices on a four-day week. Its development institute has estimated that up to 3.1 million Filipinos could fall into poverty as a direct result.

Indonesia, an oil producer, is burning through reserves to defend the rupiah and is one policy mistake away from a repeat of the September 2025 fuel protests that turned violent.

Thailand has restarted decommissioned coal units, capped public-building air-conditioning at 27°C, and is in stage two of a three-stage rationing plan.

Vietnam, Bangladesh and South Korea are rationing energy. Even Singapore, with the deepest pockets in the region, is struggling to source enough bunker fuel for the ships that anchor its economy.

What it’s like for us 

Malaysia has been spared the worst so far, and not by accident. We produce some of our own oil and gas.

The ringgit has held up. And Budi95 and Budi Diesel have kept headline pump prices within reach, holding Q1 inflation to a modest 1.6%. Despite the best efforts by the Madani government, none of those three buffers is unlimited.

The clearest warning is in the subsidy line. Budget 2026 allocated RM15 billion for fuel subsidies; the treasury now projects the full-year bill at RM58.4 billion, a shortfall of more than RM43 billion on a war we had no role in starting.

Ministries have been instructed to cut services and supplies spending by 10% and reduce allocations to statutory bodies and GLCs by 20%. The monthly Budi95 quota has been reduced from 300 litres to 200 litres. This is early fiscal triage.

What most of us have not priced in are the second-order effects.

The first is petrochemicals. Modern manufacturing runs on plastics derived from Gulf feedstock.

Nurhisham Hussein, economic adviser at the Prime Minister’s Office, has warned that SMEs had only one to two weeks of buffer stock left as of April, with production stoppages, reduced shifts and overtime cuts likely to begin in earnest by June and July.

Around 70% of a modern car is plastic; the same is true of medical devices, hygiene products, food packaging and electronics. Alternative US supplies exist, but specifications differ from what our factories use, and shipping takes weeks longer.

The second is agriculture, where the crisis becomes a food story.

Roughly a third of the world’s traded urea passes through the Strait of Hormuz, and the region supplies close to half of globally traded sulphur, essential for both fertilisers and pesticides.

Urea prices have already jumped from around US$400 to US$700 a tonne. In Thailand, pineapple and palm oil farmers are reporting stunted crops and trucks being repossessed.

Indonesian palm oil faces a double squeeze from fertiliser shortages and a forecasted El Niño. Our padi and palm oil sectors are exposed to the same dynamic, and reduced fertiliser application will not show up in prices until harvest.

By then it will be too late to fix.

The third, and least discussed, is the recovery timeline.

Even if the war ended tomorrow, the supply side cannot simply reboot. Qatar’s Ras Laffan LNG complex lost about 17% of its capacity to Iranian strikes in March, and replacement gas turbines have lead times of two to four years from only three manufacturers worldwide.

QatarEnergy estimates full repairs could take three to five years.

Oil wells that have been shut cannot simply be turned back on; many have been cemented over. Nurhisham puts realistic normalisation at six months from the date hostilities actually end, assuming they end soon.

This is what makes the current shock fundamentally different.

The 1997 Asian Financial Crisis was a demand and currency crisis we could devalue and restructure out of.

Covid-19 was a demand shock resolved by fiscal stimulus and vaccines. The 2022 Russia-Ukraine spike was painful but transient, cushioned by a strong dollar and intact Gulf supply.

This is a supply-side shock layered on top of physically damaged infrastructure. No amount of government spending can manufacture barrels that do not exist or repair turbines that take years to build.

What we must do

Tough decisions may need to be made. Subsidy targeting will need to go further. Strategic stockpiling of petrochemical feedstock and fertiliser deserves Cabinet attention now, not in July.

Demand management is already under way, but the current civil-service work-from-home arrangement will likely need to be deepened. Food security for padi and palm oil can no longer be deferred to the next planning cycle.

None of this is a counsel of despair. Malaysia is structurally better placed than most of our neighbours and our institutions are capable.

But the real risk here is complacency and mismanaged expectations — alongside politicians who are focused on campaigning instead of governing.

The worst thing we can do is assume that because we have not felt the full impact, we will somehow continue to be spared.

The bill is in the post. The question is whether we use the time we have left to prepare or wait for it to arrive and react. - FMT

Dr Helmy Haja Mydin is chairman of the Social & Economic Research Initiative.

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