High oil prices amid Ukraine war a boost for Malaysia

According to Tengku Zafrul Aziz, Malaysian Finance Minister, the Ukraine war is driving up the oil prices, which will help Malaysia recover from the COVID-19 epidemic and the 1MDB crisis.

Zafrul predicted that Malaysia’s deficit would be reduced and its fiscal situation would improve as commodities prices increased.

He told the Financial Times the increase in commodity prices will actually help Malaysia.

“We assume an oil price around $66 per barrel in our budget. But obviously today’s is much higher than that, so then there’s a potential upside in terms of our fiscal position.”

Since the 1MDB crisis, from which Malaysia has failed to recover, the government has suffered the backlash of the COVID-19 epidemic, which has exacerbated the country’s debt issues.

The government poured billions of dollars into the economy, increasing Malaysia’s budget deficit to 6.4% of GDP in 2021, more than double its pre-pandemic projection.

And now, higher oil prices are projected to help Ismail Sabri Yaakob’s government.

It is an unexpected chance for the country’s leaders to do the right thing and avoid another dire crisis.

Malaysia has been under political turmoil since the 1MDB scandal leaked out, culminating in Najib Razak’s downfall in 2018 and a period of political and economic instability that has yet to be resolved.

Higher oil prices

Investors have flocked to Malaysian equities, indicating that the country’s economy will benefit. Malaysian stocks have outperformed global stocks throughout the Ukraine crisis, with the FTSE-Bursa Malaysia Kuala Lumpur Composite index up 4.6% since the beginning of February.

Because of the spike in the worldwide price of crude oil, a total of RM28 billion in fuel subsidies would be paid out this year. This will allow the government to maintain the price of fuel at the pumps.

In January of this year, crude oil was priced at US$85 (RM359) per barrel, up from US$55 (RM232) per barrel in the same month the previous year.

As a result, the government was compelled to absorb a tenfold rise in subsidies for gasoline, diesel, and liquefied petroleum gas.

This meant that subsidies increased from RM200 million in January last year to RM2 billion in January this year.

The government would have to pay subsidies of up to RM28 billion this year if crude oil prices stays over US$100 (RM422) per barrel, compared to RM11 billion in 2021.