Bank Negara Malaysia says the country’s strong fundamentals, net energy exporter status and targeted subsidies provide buffers against oil price shocks from the West Asia conflict.
KUALA LUMPUR: Malaysia is in a position of strength to face oil price shocks stemming from the West Asia conflict, according to Bank Negara Malaysia.
The central bank cited robust domestic demand, moderate inflation, a sound financial sector and a resilient external position as key supports.
Malaysia’s standing as a net energy exporter also provides a buffer against external headwinds, BNM stated in its Economic and Monetary Review 2025.
“Nevertheless, BNM will remain vigilant to the rapidly evolving nature of this conflict and stand ready to ensure that monetary policy remains supportive of the economy while safeguarding price stability,” it said.
Geopolitical tensions have escalated sharply since February 28, disrupting regional oil and gas production and associated supply chains.
Concerns over safety and rising insurance costs led to significant disruptions in maritime traffic through the Strait of Hormuz, which sees nearly 20% of global oil supply daily.
BNM said the overall impact on Malaysia would depend on the conflict’s duration, the severity of disruption, and its effect on global energy production and logistics.
During previous conflicts like the 1990 Gulf War and the 2022 Russia-Ukraine war, oil prices increased significantly for three to six months before declining.
However, BNM noted outcomes have varied and the current conflict could unfold differently.
“If hostilities remain contained and de‑escalate gradually, disruptions may be short‑lived,” the central bank said.
It added that strategic reserves could cushion near‑term supply shortfalls in such a scenario.
“In such circumstances, oil prices are likely to settle at elevated but manageable levels, with limited spillovers to global growth, trade and inflation.”
By contrast, more persistent disruptions could result in prolonged maritime traffic issues and sustained damage to energy infrastructure.
“This would keep oil prices elevated for longer, dampen external demand, and weigh on global trade and growth,” BNM warned.
Elevated energy costs in this scenario could lead to broader cost pass-through to consumer prices, posing risks of more persistent inflation.
“This would erode household purchasing power and amplify the drag on domestic demand,” it added.
BNM said the conflict affects Malaysia’s economy mainly through three key channels.
These are higher energy prices raising import costs and domestic production costs, weaker external demand weighing on exports, and more volatile capital flows.
“Elevated oil prices and heightened uncertainty increase risk aversion, prompting a shift towards safe-haven assets,” the central bank explained.
This leads to more volatile capital flows across emerging markets, including Malaysia, with potential spillovers on domestic financial conditions and the exchange rate.
However, BNM said these effects might be partly mitigated by higher commodity-related export earnings.
It added that existing targeted fuel subsidies would also help cushion the transmission of higher global energy prices to domestic inflation and the economy.
