PETALING JAYA: The overnight spike in the prices of oil – the mainstay commodity in the Middle East, has caused world markets to buckle under selling pressure yesterday.
The continued flare up in Mid-East tensions as a consequence of the United States and Israel conflict with Iran showed signs of further escalation as oil prices spiked as much as 25% to its highest levels since mid-2022.
At the time of writing, Brent Crude Oil traded at US$102.98 per barrel, off its intraday highs of US$117.70 per barrel earlier in the day as Group of Seven countries are poised to discuss a possible joint release of emergency reserves to tackle supply disruptions from the Iran conflict.
The FBM KLCI plunged in its biggest one-day percentage loss of 2.55% or 43.89 points to 1,674.17 since the conflict began just over a week ago on Feb 28.
Total trading volumes on Bursa Malaysia was higher than usual in recent times with 5.52 billion shares worth RM5.87bil changing hands.
Losers overwhelmingly trumped gainers with 1,140 counters declining while 284 counters rose and 308 remained unchanged – all indices were in the red except for plantations and energy.
The local bourse had held up relatively well last week with some selling pressure creeping in as the week progressed, but it buckled along with the FBM KLCI yesterday even as dented confidence in regional markets including the US futures was evident.
There are some concerns for Malaysia, which is still considered a net oil exporter should oil prices continue its upward bias.
Socio-Economic Research Centre’s executive director Lee Heng Guie said oil prices faced a high risk of soaring to US$130 to US$150 per barrel on extreme supply disruption risks, if the Mid-East conflicts worsen without any signs of a near-term end.
“The flows of crude trade through the Strait of Hormuz remained depressed and disrupted or even a total blockade of the chokepoint. The net impact of higher global oil prices on the fiscal deficit is negative as an increase in oil-related revenue is largely offset by high fuel subsidy payment,” Lee told StarBiz.
“Assuming average Brent crude price had increased to US$100 per barrel from US$65 used in the preparation of Budget 2026, an additional US$35 increase in oil price will generate extra increase in federal revenue by RM10.5bil, but it will be more than offset by RM12.4bil for fuel subsidies payment.
“This will increase the budget deficit ratio by 0.1 to 0.2 percentage points from the budget’s targeted deficit ratio of 3.5% of gross domestic product in 2026,” he added.
Lee said the potentially sustained high oil prices create risks of straining the fiscal deficit and reduce the limited fiscal space for development expenditure that requires a recalibration.
IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said it was too early to assume oil prices would remain above US$100 for a prolonged period of time.
“While crude has indeed surpassed US$100, the key issue is how long prices can stay at this level, which largely depends on the duration and escalation of the current Mid-East tensions.”
Historically, Mohd Sedek noted that oil price spikes driven by geopolitical conflicts tend to be temporary unless there are sustained disruptions to global supply.
“During 2013–2014, oil prices remained above US$100 for extended periods, but the current situation appears different. The recent surge is largely driven by geopolitical risk rather than structural supply shortages, which suggests that prices may remain volatile rather than permanently elevated.
“At this stage, we do not expect oil prices to remain above US$100 throughout the year,” he added.
However, Mohd Sedek noted if crude oil prices remain around US$100 for the next three weeks and the government continues to maintain RON95 petrol at RM1.99 per litre, the fiscal impact could become more visible.
“Based on our estimates, this could increase the government’s fuel subsidy expenditure by approximately RM3bil to RM5bil within a quarter, reflecting the additional cost of absorbing higher global fuel prices,” Mohd Sedek said.
