KUALA LUMPUR: Rising tensions in the Middle East are keeping global oil prices elevated, creating both opportunities and uncertainties for Malaysia’s oil and gas (O&G) sector.
Experts warn that while Brent Crude could hold between US$70 and US$80 per barrel this year, domestic policy disputes and market uncertainties could prevent the country from fully benefiting from the windfall.
Former investment banker turned high-net-worth investor Ian Yoong Kah Yin told StarBiz that the tensions are likely to support Brent Crude at US$70 to US$80 per barrel in 2026, but the upside for oil and gas services and equipment (OGSE) providers is far from assured.
“This is a conflict, not a full-blown war, at this juncture. The base case is that this conflict will be over in a couple of months,” he said.
He added that uncertainty over the Straits of Hormuz, through which roughly one‑fifth of the world’s oil supply or over 20 million barrels of oil passes every day, will linger given the instability of the political situation in Iran.
“A country cannot be bombed into forming a stable government.”
Prior to the attacks, Yoong pointed out Brent Crude had already risen by the largest percentage at the start of a year since 2022.
“It is too early for OGSE providers to rejoice at this moment.”
Yesterday, Brent Crude was trading at US$78.90, up more than 8% from the previous day, and briefly touched US$80 at one point.
Meanwhile, an OGSE company’s top executive said the near-term impact of the Middle East conflict will depend on the duration of the conflict and the extent of infrastructure damage.
“We don’t know how much damage is done to the O&G infrastructure (in Iran). If there is a lot of damage, it could take maybe a year or two before they can rebuild. Even if the war stops soon, prices may not immediately retreat,” he told StarBiz.
Iran produces about 3.3 million barrels per day, roughly 3% of global output.
But its geographic control of the Straits of Hormuz, amplifies its influence far beyond its own production.
Qatar’s liquefied natural gas (LNG) exports, which account for 20% of global LNG trade, are also exposed as shipments must transit the strait.
While the Organisation of the Petroleum Exporting Countries and its allies could increase supply to stabilise prices, the executive noted that ramping up production is not instantaneous.
“They can’t do one million. It takes time.”
He warned that the current episode could mark the start of a prolonged period of geopolitical instability.
“This could be the beginning of a lot of future problems. There will be a lot of geopolitical issues going forward. There will be a lot of disruption going forward.”
Domestically, concerns persist over ongoing Petroleum Sarawak Bhd (Petros) – PETRONAS tensions.
The dispute over gas distribution rights and regulatory authority in Sarawak – which commands a vast of the country’s natural reserves – is scheduled to be clarified at the Federal Court on March 16.
But industry players cautioned that Malaysia risks “missing the boat” of this high oil price environment if internal disputes and policy uncertainty continue to delay investments.
“With the dispute between Petros and PETRONAS, we will be the biggest losers of all this. When the rest of the world is benefiting from high oil prices, we are the biggest losers. We are missing the boat,” said the industry executive.
According to him, the prolonged uncertainty could affect investor sentiment.
While higher oil prices mean higher revenue for the government, its subsidy bill is also expected to rise.
BIMB Securities Research said that even at a “severe but contained” level of US$80 per barrel, the government’s RON95 subsidy bill is estimated at RM18.9bil.
“This is significantly more likely than extreme outlier scenarios, which would require sustained physical supply total blockades,” it said.
Similarly, Yoong said the higher revenue will more than offset the higher expenditure for fuel subsidies.
“Higher oil prices will indeed be a major positive for Malaysia’s balance sheet,” he said.
To account for embedded geopolitical risk, BIMB Research has revised its baseline for 2026 average crude oil to US$76 per barrel, up from US$66.
The research house said Malaysia is well-positioned to serve as a “safe harbour” during this period of attrition.
“Investors should focus on a ‘flight to quality,’ prioritising companies with domestic energy insulation and integrated supply chains that can thrive in a US$70 to US$80 per barrel oil environment without triggering severe domestic consumption shocks.”
Kenanga Research said current oil prices have already exceeded its expectation of US$67 per barrel for 2026.
It identified Hibiscus Petroleum Bhd
as the most direct proxy to benefit, while Dialog Group Bhd could gain from an anticipated ramp-up in demand for crude storage for national security purposes if geopolitical tensions persist.
The research firm said PETRONAS’ maritime solutions provider MISC Bhd historically gains from better tanker rates and could be a beneficiary if a blockade is sustained.
Hong Leong Investment Bank (HLIB) Research, meanwhile, believes the ongoing conflict will be short-lived, like the 12-day war last year.
“Consequently, we envision a temporary oil price spike before an eventual normalisation back to the US$60 to US$70 per barrel levels,” it said.
While higher oil prices will push Malaysia’s petrol subsidy bill higher, HLIB Research does not expect the government to alter its 2026 fiscal deficit target of 3.5%.
“The war will likely accord near term strength to the US dollar, and on the flipside, ringgit weakness – which could reverberate to the local stock market.” it said.
“Potential winners are those in O&G upstream and petrochemicals, while losers include AirAsia X Bhd and Westports Holdings Bhd.”
Malaysia produces over 600,000 barrels of crude oil per day.
The O&G sector remains a key pillar of the economy, contributing roughly 20% to gross domestic product and about 18–20% of federal government revenue.
The country also remains heavily reliant on hydrocarbons for its energy needs.
Oil and petroleum products accounted for 31.5% of Malaysia’s energy supply in 2023, while natural gas made up 41.8%, according to the International Energy Agency.
Malaysia’s total trade with Iran was valued at RM2.6bil in 2024, up 24.6% from the previous year, with exports largely consisting of palm oil and imports mainly of Iranian O&G products.
Still, this represents only about 0.1% of Malaysia’s total trade of RM2.8 trillion.
