Malaysia’s economic growth could be reduced by around 0.3 to 0.5 percentage points on an annualised basis if global crude oil prices remain elevated at between US$100 and US$120 per barrel, according to RAM Ratings.
In Part 4 of its Trade Unpacked series, the rating agency said the 2026 US-Iran conflict has disrupted oil flows through the Strait of Hormuz, a key maritime chokepoint that normally handles around one-fifth of global oil supply.
While alternative pipeline routes and drawdowns of petroleum reserves have helped ease some shortages, RAM said global oil flows remain significantly below pre-conflict levels. Production has also been affected by damage to oil infrastructure and shutdowns among major Middle Eastern producers.
The agency expects the resulting shock to weigh on global economic growth and oil production in 2026 before conditions improve in 2027.
For Malaysia, RAM said the main impact is likely to come through higher oil prices rather than direct trade disruptions.
The country remains exposed because 69% of its crude oil imports in 2025 came from the Middle East. Since the conflict began, Malaysia has partly offset lower Middle Eastern supplies by increasing purchases from alternative producers, particularly Cameroon and Angola.
RAM noted, however, that Malaysia also has an important buffer as a net exporter of refined petroleum products and natural gas.
Even so, disruptions to imported crude could still affect domestic refinery operations because Malaysian refineries rely on imported heavier sour crude as feedstock, rather than the light sweet crude produced domestically.
RAM’s input-output analysis suggests Malaysia’s direct economic dependence on value added from Egypt, Jordan, Saudi Arabia and the United Arab Emirates is relatively limited. A hypothetical 10% decline in value added from those economies is estimated to reduce Malaysia’s final demand by only 0.16%.
The agency cautioned that this may understate the wider economic importance of Middle Eastern inputs, particularly crude oil, given their role as critical production inputs.
More significant risks would arise if oil prices stay high for a prolonged period, raising production and transportation costs across multiple industries.
Although fuel subsidies help cushion Malaysian consumers from immediate fuel-price increases, RAM said higher business costs could eventually spill over into broader inflation and weaken domestic consumption.
The rating agency said Malaysia has several structural buffers against the current energy shock, but remains vulnerable to the indirect effects of sustained high oil prices through higher production costs, inflationary pressures and softer domestic demand.
RAM said developments in global energy markets therefore remain a key downside risk to Malaysia’s economic outlook.
