Johari: Malaysia must brace for trade disruptions as Middle East war intensifies

Johari: Malaysia must brace for trade disruptions as Middle East war intensifies

KUALA LUMPUR: Disruptions to Malaysia’s trade flows following the attacks on Iran by the United States and Israel are inevitable, said Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani.

“At this moment, whenever any war occurs, it will certainly affect the flow of our trade.”

Johari said disruptions to shipping routes were already felt.

“Sometimes, when ships want to enter certain areas, they cannot.

“Like yesterday (Saturday), several aircraft had to turn back and some could not even depart.

“This is one of the disruptions to our economy,” he said at the Ramadan Outreach Programme: Community Bubur Lambuk 2026 and breaking-of-fast event organised by the Federal Territories Youth Council here yesterday.

Johari said the impact would not be confined to Malaysia.

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“All countries — when there is such a war — will face higher risks and trade will be disrupted or may have to take longer routes than usual.”

Johari said a prolonged conflict could further weigh on global economic activity.

“If this continues, the economy will certainly be affected.”

Asked about the implications on Malaysia’s foreign direct investment, Johari said the ministry was still assessing the situation, but there will be some effect.

Meanwhile, economists say Malaysia may benefit from rising oil prices resulting from the conflict but caution that prolonged instability may drag down the economy.

Economist Dr Geoffrey Williams told the New Straits Times that Malaysia, as an oil-exporting country, was in a relatively favourable position if crude prices continued to climb.

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He said the country could also be viewed as a regional safe haven for investors.

Global oil prices have risen in recent days amid concerns that tensions in the Gulf could disrupt supply flows, particularly around the Strait of Hormuz, a critical maritime chokepoint through which a significant share of the world’s oil shipments pass.

Williams said oil prices, which had breached US$70 per barrel, could hit US$80 to US$90 in the coming week if uncertainty persists.

Higher crude prices would boost revenues for Petronas and strengthen government income through petroleum-related taxes and dividends. But this would also increase the cost of subsidising RON95 fuel, he said.

“On balance, higher oil prices are better for Malaysia, but may push subsidy rationalisation quicker towards a tiered prices system.”

He said the ringgit’s current strength provided a buffer against external volatility and that most sectors were reasonably protected from immediate disruption.

Tourism could go down in
the short-term, particularly as some European travellers transit through Middle Eastern hubs
to reach Southeast Asia, but he expected any disruption to be short-lived.

‘INDIRECT RISKS’

Economist Dr Hamidah Mohd Yusop said Malaysia’s vulnerability lay less in direct trade exposure to Iran, which was relatively small, and more in indirect global channels.

She said Malaysia is a highly open economy integrated into global commodity markets, supply chains and financial systems.

“The most immediate transmission mechanism is energy. Heightened tensions in the Gulf typically increase crude prices due to supply uncertainty.”

Even though Malaysia produces oil and gas, domestic pricing and industrial input costs remain linked to global benchmarks.

Sustained increases in oil prices would gradually raise transportation and production costs, potentially feeding into broader consumer prices and inflation expectations.

Another concern is rising shipping and insurance costs.

If maritime routes are perceived as risky, freight rates and war-risk insurance premiums may rise, which can affect both exporters and importers.

“Over time, these added costs may be passed through supply chains, influencing food prices, industrial inputs and retail goods,” Hamidah said.

‘DURATION MATTERS’

Hamidah said a short-lived spike in oil prices would likely be manageable.

However, if elevated prices persist for several months, the economic effects would become more entrenched.

“Sustained increases in fuel and energy costs would gradually feed into transportation, electricity generation and food distribution expenses.”

Businesses might initially absorb higher costs, but prolonged pressure would typically be passed on to consumers.

Higher oil prices could strengthen government revenue through petroleum-linked income, particularly from Petronas.

But whether this translates into a fiscal cushion is uncertain, Hamidah said.

“If global fuel prices rise and domestic prices are shielded through broad subsidies, government expenditure may increase significantly,” she said.