Hormuz halt still weighs on Malaysian economy

KUCHING (April 6): Malaysia may have secured safe toll-free passage for its vessels through the Strait of Hormuz, but that does not mean it is insulated from the economic fallout caused by the current US-Iran war.

The real danger for the country is not whether its own ships are stopped, taxed or turned back, but whether one of the world’s most important trade and energy corridors becomes impaired long enough to trigger a global energy crisis and lasting disruption across global logistics networks.

Since the US-Israel strikes on Iran on February 28, the conflict has steadily evolved from a geopolitical flashpoint into a global oil shock as Brent crude prices have surged by about 60 per cent to US$109.03 per barrel (bbl) on April 2.

The main cause for this surge has been the effective closure of the Strait of Hormuz, a narrow waterway between Iran, Oman and the UAE which carries roughly 19 million to 20 million bbls of crude oil and petroleum liquids per day, or about one-fifth of global oil transit.

Hailed as the world’s most important energy chokepoint, the Strait of Hormuz is currently still legally open, but Iran’s asserted control over the strait has caused traffic through it to plunge by roughly 95 per cent.

From the start of the conflict, industry analysts had firmly conjectured that a sustained closure of the strait is unlikely as historical precedent suggests that prolonged disruptions to Gulf oil supply is relatively rare.

But as we enter into the second month of the conflict, most analysts and energy traders no longer believe that the disruption in Hormuz will be a short-lived event with consensus shifting towards an effective closure for the remainder of 2026, which would cause structural and long-term shock to global trade.

Instead, analysts now believe that the Hormuz will turn into a permission-based controlled corridor overseen by Iran’s Islamic Revolutionary Guard Corps (IRGC).

This new normal, which is expected to persist for at least the next few months has caused the unfolding of one of the most severe global oil supply disruptions in history.

Brent crude prices are now expected to stay around or above US$100 per bbl through to mid-2026 with prices only starting to ease at the end of 2026 as producers manage the supply chain crisis.

In response to the crisis, International Energy Agency (IEA) member countries had agreed to release 400 million bbls of oil from its emergency reserves on March 11.

However, this has not been enough to cap the rally in oil prices, as fears over sustained disruption in the Strait of Hormuz continue to outweigh even the largest coordinated emergency stock release in the agency’s history.

The Southeast Asian (SEA) region in particular has been one of the hardest hit by the current oil price shock and supply disruption as 70 to 80 per cent of the region’s oil comes from the Middle East.

Many countries in the region have implemented energy savings measures such as work from home (WFH) directives for civil servants, shorter work weeks, alternate driving days, increased electricity saving measures in public and private facilities, and even accelerating rollouts of biofuel directives.

To reduce inflation and fears of oil shortages, fuel rationing measures and price caps have also been introduced.

The paradox of high oil prices

For Malaysia, the current high oil prices create a paradox.

On one hand, Malaysia as a net energy exporter should stand to benefit from stronger petroleum-related revenue as well as from a secondary effect of oil buyers diverting towards stable, non-aligned producers.

In a note from March 2, the research arm of MBSB Investment Bank Bhd (MBSB Research) guided that Malaysia’s oil would be an attractive alternative, driving a surge in export volumes, which would significantly bolster Malaysia’s trade surplus in the current high oil price environment.

However, MBSB Research cautioned that prolonged supply-side shocks may cause Bank Negara Malaysia (BNM) to consider an overnight policy rate (OPR) hike to anchor inflation expectations and prevent the economy from overheating.

“This creates a significant trade-off: higher inflation reduces household purchasing power, while higher interest rates increase the cost of borrowing for investment.

“This dual pressure on consumption and investment risks a downturn of private sector activity, ultimately leading to weaker domestic demand and a potential deceleration in GDP performance,” MBSB Research cited.

Additionally, prolonged conflict within the region will also ultimately dampen global growth and eventually weaken export demand.

Adding to this view, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) added that Malaysia’s structural exposure to energy imports limits the overall benefit of a high oil price environment.

While Malaysia is a net exporter of crude oil and natural gas, it still imports a meaningful portion of refined petroleum products.

As a result, rising global oil prices can end up increasing domestic fuel subsidy costs and push up overall transportation and production expenses across the economy.

“Over time, sustained oil increases will raise transportation and production costs across the economy. Businesses will gradually pass these increases through supply chains and inflation expectations may shift higher if cost pressures persist,” the research arm said in a report from March 5.

They added that shipping and insurance costs also pose an additional cost risk to both exporters and importers.

“These pressures transmit more quickly than petroleum revenue gains,” Kenanga Research stressed.

Ringgit, inflation may come under pressure 

While historically, the ringgit has tended to strengthen when oil prices rose due to Malaysia being viewed as a commodity exporter, in recent years this does not seem to be the case anymore.

Kenanga Research guided that their regression analysis confirms that this historical link is not just broken but has fundamentally inverted.

This means that the ringgit no longer rallies from higher energy prices; but rather depreciates when energy prices rise.

Kenanga Research shared that their analysis implied that a one per cent increase in Brent prices is now associated with an approximately 0.3 per cent depreciation in the ringgit.

“In the event of a major supply disruption in the Strait of Hormuz pushing Brent to or above US$100 per bbl, the ringgit could face a 6.0 to 9.0 per cent depreciation pressure from the oil channel alone, independent of broad USD strength,” they cautioned.

While the surge in Brent prices is an overall boon for Malaysia’s oil and gas (O&G) sector, persistent high oil prices increases the risk that the price shock will broaden from energy into freight, food, distribution and inflation expectations.

The changes in inflation forecasts from analysts reinforce this point as several analysts have upgraded their 2026 inflation forecasts in view of the current macro environment.

In a report from March 20, Kenanga Research guided that they believe Malaysia may be more insulated than its regional peers due to its status as a net energy exporter but its current low inflation environment will not last as global commodity shocks will still pass through via cost-push inflation.

The research arm highlighted that the Hormuz threatens not only oil flows but also fertiliser supplies as over one-third of the world’s fertiliser trade moves through the Strait.

“Higher input costs are likely to lift prices for staples such as rice, poultry and vegetables, potentially feeding into food inflation in the coming months. While fiscal transfers continue to support demand, rising transport and farming costs will erode affordability.”

“If producers pass on these costs to consumers, private consumption, Malaysia’s main growth engine, may soften,” they opine.

In light of this, they raise their 2026 inflation forecast to 2.1 per cent from 1.9 per cent.

That said, MBSB Research believes that inflation will still remain manageable in 2026 thanks to continued fiscal support under Sumbangan Tunai Rahmah (STR), Sumbangan Asas Rahmah (SARA), and improving tourism flows ahead of Visit Malaysia 2026 (VM26).

Holding a ‘positive’ call on the consumer sector, the research arm guided that domestic consumption fundamentals remain intact but noted that higher consumer prices may cause downtrading behaviour, giving upside to players such as 99 Speed Mart Retail Holdings Bhd (99 Speedmart) and Mr DIY Group Bhd (MR DIY) who target lower income brackets.

O&G sector the primary beneficiary

As aforementioned, the most obvious beneficiaries of the current US-Iran war would be the O&G sector as a high oil price environment would directly benefit earnings.

Should oil prices stay elevated for long enough, major oil producers may be incentivised to accelerate investment and development activities in the upstream segment to compensate for the shortfall created by the disruption.

Oil service players could also see improved activity levels as higher oil prices strengthen cash flows for upstream operators, potentially supporting increased spending on projects.

From this, Kenanga Research guided that the upstream sector is now set up for another upcycle for the next two years at least while the upstream services segment deserves a valuation rerating to +1 standard deviation (SD) from its current levels.

They note that players such as Dayang Enterprise Bhd (Dayang), Velesto Energy Bhd (Velesto), Uzma Group Bhd (Uzma) and Deleum Bhd (Deleum) were already starting to display a modest uptrend since 2022 with new highs up to mid-2024.

While mid and upstream players are expected to offer better exposure to the O&G sector, Kenanga Research argues that the upstream services segment would be a more defensive choice for investors in the medium-term due to the volatility of Brent prices.

However, in the near-term Kenanga Research advocates for investors to look into downstream players such as Petronas Chemicals Group Bhd (PChem) as typically polyolefin prices correlate partially with crude oil prices.

Meanwhile, MBSB Research opines that players such as Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), Deleum Bhd (Deleum), and Bumi Armada Bhd (BAB) are well positioned to capture increased demand for offshore engineering, maintenance, and production support services.

These companies are involved in various segments of the offshore oil and gas ecosystem, ranging from engineering and fabrication to maintenance services and floating production systems.

Planters also benefit from high oil prices

Historically, there is a strong relationship between the oil prices and palm oil (PO) prices due to PO being a major feedstock for biodiesel.

Since the start of the conflict, palm oil (PO) prices have grown by about 14 to 15 per cent to RM4,800 on April 2, while the Palm Oil-Gas Oil (POGO) spread has narrowed to a 41-month low of US$292 per metric tonne discount on March 30.

The higher PO prices will be directly beneficial to planters’ earnings while the lower Palm Oil-Gas Oil (POGO) spread had caused Indonesia to revert on their previous decision to hold off implementing its B50 biodiesel blending mandate, which would require diesel to contain at least 50 per cent biodiesel of PO origin, in 2026.

According to RHB Investment Bank Bhd (RHB Research), the B50 biodiesel mandate is expected to take away an additional four million MT of PO supply from the global market, increasing support for PO prices.

However, in the longer-run, RHB Research cautions that prolonged shipping disruptions through the Hormuz will negatively affect PO demand.

RHB Research estimates that countries including Pakistan, Egypt, Saudi Arabia, Turkey, the United Arab Emirates and Iran could be affected, potentially impacting up to 15 per cent of global PO demand if shipping routes are disrupted.

While shipments could be diverted through longer routes, RHB Research said this would likely result in higher freight costs.

“We understand global freight costs have risen to all-time highs, while insurance companies are preparing for the possible activation of ‘notice of cancellation’ provisions in war-risk policies and for sharp spikes in war risk premiums,” RHB Research shared in a plantation sector report on March 11.

And given that one-third of the world’s fertiliser trade also passes through the waterway, RHB stressed that increased fertiliser prices could add significantly to overall costs for planters as fertiliser costs comprise circa 20 to 30 per cent of overall costs while transport and logistics costs comprise of circa 5 to 10 per cent.

Given these implications, RHB Research said the outlook for the plantation sector remains volatile, with PO prices likely to remain sensitive to developments in the global energy market and geopolitical tensions.

Seaports & logistic sit between pressure and opportunity

Overall, most analysts agree that Westports Holdings Bhd’s (Westports) earnings outlook remains largely intact despite the conflict, as its operations are primarily centred on containerised cargo rather than oil and gas (O&G) shipments.

Maybank Investment Bank Bhd (Maybank Research) also noted that the port operator could benefit from elevated freight rates.

“The Middle East-related disruptions could keep effective vessel capacity tight due to route diversions, delayed network normalisation for Suez Canal transit and higher bunker costs. These factors are supportive of elevated freight rates, particularly on Asia-Europe lanes, which could pose upside risk to Westports,” it said in a note on March 11.

Currently, tanker rates have surged with very large crude carrier day rates for Middle East-China routes hitting US$500,000 per day.

While this would be beneficial for logistic players like MISC Bhd (MISC), analysts argue that upside is limited as 73 per cent of its tankers fleet is tied to long-term charters.

Additionally, cargo flows rerouted or consolidated through alternative Asian hubs following the closure of the Strait of Hormuz which may instead increase transhipment volumes for Westports.

That said, Kenanga Research cautioned that while the current macro environment may bring some upside to selected players, a prolonged conflict will ultimately hurt the wider seaport & logistics ecosystem by further exacerbating the current slowdown in global trade.

They note that global trade has already deteriorated sharply due to unclear direction in trade tariffs and shipping diversion from the Red Sea as the World Trade Organisation (WTO) had slashed its 2026 global merchandise trade volume growth to 0.5 per cent from 1.8 per cent back in October 2025.

Press Metal gains, AirAsia X bleeds

While most sectors seem to hold a mixed outlook to the current macro environment, many analysts agree that Press Metal Holdings Bhd (Press Metal) has emerged as a clear winner as aluminium prices have surged due to the war disrupting Gulf smelters and threatening bauxite and alumina flows in the region, tightening an already fragile global supply chain.

Since Feb 27, LME aluminium prices have surged by about 9.2 per cent to about US$3,447 per tonne on April 3.

And should the war drag on, Press Metal is still expected to benefit as the company offers direct exposure to the aluminium supply shock.

In contrast, AirAsia X Bhd (AirAsia X) is one of the clearer losers due to the strong correlation between crude oil and jet fuel.

According to Maybank Research, every US$1 increase in jet fuel above US$85 per bbl could potentially wipe RM75 million from AirAsia X’s bottom-line.

The analyst also noted that if average jet fuel prices remain at US$125 per bbl for a prolonged period, it could reverse their earnings estimates for AirAsia X from RM900 million to a loss of RM1.4 billion.

“That said, we believe that AirAsia X can neutralise the impact of higher jet fuel prices by raising its average fare by 19 per cent to RM285 to RM290 per passenger but it would come at the expense of load factors,” they said in an aviation note from March 24.

On a positive note, AirAsia X’s Middle Eastern counterparts are seeing much worse with mass cancellations which might translate to higher load as Chinese and Indian tourists rerouting towards the South East Asian region which remain politically neutral and relatively safe.

Short-term winners, broader losses

Ultimately, parts of the market may find short-term upside from the current macro environment but in the larger picture, the war benefits no one in a meaningful sense.

The same shock that lifts earnings for a handful of sectors also raises costs for businesses, squeezes households, disrupts trade, fuels inflation and weakens growth visibility across the broader economy.

In the end, whatever gains emerge are narrow and temporary, while the damage to global stability, supply chains and consumer welfare is far wider.

That is why the latest development on Malaysian vessels, while helpful, should not be overstated.

While it removes one immediate operational risk for Malaysian-linked vessels and suggests Malaysia’s diplomatic positioning may be paying off, it is only partially beneficial as Malaysia does not trade in a vacuum, and its economy does not depend solely on whether its own ships are exempt from direct tolls.

Instead, it depends on the wider global shipping system, on the price of freight and insurance, on the availability of imported inputs and on whether supply chains remain fluid for everyone else too. Even if Malaysian vessels themselves are not being charged, Malaysia still absorbs the shock when the wider logistics ecosystem becomes slower, tighter and more expensive.

So, while Malaysia may enjoy some diplomatic and commodity-related cushioning, it still sits downstream of the global cost chain.