PETALING JAYA: The latest episode of the resumption of hostilities between the United States and Iran will likely have a limited impact on Malaysia’s inflation and the FBM KLCI for now, the pivotal point being for how long elevated oil prices will remain sustained, say market experts.
Regional markets offered divergent signals yesterday with mixed performances, although the local index was one of those closing in the red, settling 0.35% lower at 1,677.64, alongside Hong Kong’s Hang Seng and TAIEX of Taiwan. Concurrently, Singapore’s Straits Times Index, the Shanghai Stock Exchange, Kospi and the Nikkei 225 ended the day higher.
The ringgit, meanwhile, remained stable against the US dollar, oscillating between RM4.07 and RM4.08 even as the latest round of fighting in the Middle East continues to escalate.
Economist and investment strategist at IPP Global Wealth Mohd Sedek Jantan said that the latest increase in oil prices is unlikely to become a significant inflation shock for Malaysia unless it is sustained over a prolonged period.
“At this stage, we view it as a temporary geopolitical risk premium rather than a structural rise in energy prices. Among the transmission channels, we believe imported inflation poses the biggest risk rather than domestic fuel prices,” he told StarBiz.
Mohd Sedek observed that higher oil prices could increase freight rates, shipping insurance and logistics costs, which would gradually feed into the prices of imported food, raw materials and intermediate goods.
Moreover, he pointed out that any pass-through to transport fares and food prices would likely be a second-round effect and would only become more pronounced if oil prices remain elevated for several months.
He added that the government’s targeted subsidy mechanisms under Budi95, Budi Diesel, and the Subsidised Diesel Control System continue to cushion households and businesses.
Mohd Sedek highlighted that as long as Brent crude remains within his base case range of around US$80 to US$85 per barrel, which is still well below the levels seen during the March to June episode when Brent briefly exceeded US$100 per barrel, there remains scope for the government to maintain the RON95 price at RM1.99 per litre, while eligible diesel users continue to benefit from subsidised prices.
“Therefore, I see the latest increase as a short-term spike rather than the beginning of a sustained inflation cycle.
“A more material inflation risk would only emerge if the conflict causes prolonged disruptions to oil exports or shipping through the Strait of Hormuz, pushing Brent crude above US$90 per barrel for an extended period,” he said.
Meanwhile, Isaac Lim, chief market strategist for South-East Asia at Moomoo, viewed the marginal rise in oil price yesterday as a “meaningful single-day move”, although he said it would be better described as a re- escalation or another tension point.
He told StarBiz that the market is finding this situation increasingly familiar.
“This is the third time in 2026 that a flare-up has moved oil sharply in either direction. The market is still responding to headlines instead of news of supply disruptions.”
He said the latest events represent a repricing of risk rather than a structural shift – though that will change if relations deteriorate even further.
Lim added: “Putrajaya’s fuel subsidy bill in April reached RM7.5bil - a far cry from the RM700mil in January and February. That was what forced the quota cut from 300 litres to 200 litres — and a further reduction to 150 litres was floated in May, though not enacted.
“However, what we also saw recently was how the government moved in the other direction once conditions improved, with the announcement of Budi Diesel on June 21 that extended subsidies to private diesel owners nationwide.
“This came just four days after the US-Iran interim ceasefire on June 17, which dropped Brent back below US$80, erasing much of the war premium.”
Tellingly, Lim said the sequence clarifies the government’s approach, which is to hold the line on subsidies under pressure, then use any breathing room to expand the social safety net rather than pocketing the savings.
While this protects household disposable income, he said the strategy introduces a massive opportunity cost of state capital, as every unbudgeted billion tied up defending and expanding the fuel subsidy cushion is vital development capital diverted away from funding long-term economic multipliers.
Mohd Sedek noted that the impact on Malaysian equities is likely to be mixed, with the key determinant being how long oil prices remain elevated rather than the geopolitical event itself.
He believes that the immediate beneficiaries would be the oil and gas sector, particularly upstream producers, oilfield service providers and engineering companies, as higher crude prices improve earnings visibility, cash flows and capital expenditure across the energy value chain.
“The plantation sector could also benefit indirectly if higher energy prices increase demand for biofuels and support crude palm oil prices,” he said.
On the other hand, Mohd Sedek reckons that sectors with high energy consumption and transportation costs would face greater pressure, and these include aviation, logistics, transportation, manufacturing and consumer discretionary, where higher fuel, freight and input costs could compress profit margins.
“Retailers and consumer-related businesses may also experience softer demand if higher operating costs eventually reduce household purchasing power,” he said.
Moomoo’s Lim highlighted that importers and manufacturers with shipping-heavy supply chains will face straightforward freight and input cost pressure if Hormuz congestion worsens.
He added that while banks are not directly in the firing line, sustained fuel cost pressure on households and small-medium businesses in transport-dependent sectors could translate into loan quality stress down the line, something research houses began pointing to as early as the first quarter.
For downstream manufacturers and chemical players, he said the traditional view is that rising crude inputs squeeze margins.
However, the true risk in this scenario is not price volatility, but rather physical feedstock availability.
“With regional supply chains highly vulnerable to maritime chokepoints in the Strait of Hormuz, the primary strategic challenge shifts from price management to preventing localised shortages of critical cracker feedstocks like naphtha, propane, and ethane.
“In this fractured landscape, operational agility and physical volume security carry far greater weight than the headline Brent ticker,” said Lim.
