KUALA LUMPUR, April 8 — The Malaysian government’s decision to further adjust the BUDI95 allocation would be a sensible fiscal move amid the US-Iran war, but could pose a significant political risk for Prime Minister Datuk Seri Anwar Ibrahim’s coalition ahead of a rumoured snap poll, according to a new report.
An analysis by GeoQuant, a FitchSolutions company, on the politics of fuel subsidies in Southeast Asia said that while Malaysia’s move to adjust monthly subsidised fuel quotas from 300 to 200 litres helps control costs, prolonged high oil prices could force further unpopular measures.
The war, which began in late February, has driven up global oil prices by over 33 per cent, putting immense pressure on Malaysia’s policy of capping RON95 price at RM1.99 per litre.
“It is possible further future ration cuts or price increases will be necessary to preserve fiscal stability,” the report said, noting that such actions limit the country’s otherwise low macroeconomic risk.
However, the political timing is critical. GeoQuant’s Government Risk index for Malaysia has been rising ahead of regional elections, making the administration “sensitive to popular concern over the price of fuel.”
The report suggests a potential fork in the road for the government. If oil prices stabilise and the public views the current rationing as a reasonable response, it could bolster the Anwar’s standing and potentially pave the way for early federal elections.
Conversely, “if oil prices remain elevated, needed fiscal constraint will hurt the government in state elections and stave off federal elections,” which are not due until February 2028.
Regional neighbours adopt varying strategies
Other countries in the region are also grappling with the economic fallout from the conflict, each adopting different strategies.
In Indonesia, President Prabowo Subianto’s government has cut daily subsidized fuel rations to 50 litres as it faces a major challenge in keeping its budget deficit below the legally mandated 3 per cent of GDP.
Thailand has opted to partially reduce its fuel subsidy, increasing prices by about 20 cents per litre while targeting remaining subsidies more narrowly towards commercial and public transport.
Conversely, Vietnam, benefiting from a stable macroeconomic environment, is aggressively subsidising fuel prices and has cut fuel taxes to zero to support its economy.
Meanwhile, Myanmar’s military junta, already facing a tenuous fiscal position, has imposed the most severe restrictions, including a 35-litre weekly fuel limit and allowing private cars on roads only every other day, leading to a surge in black market sales.
A two-week ceasefire is currently in place, brokered by Pakistan just hours before an anticipated attack by the US on Iran, which included reopening the Strait of Hormuz for the duration.
This morning, US President Donald Trump announced he was calling off an attack that he previously warned would see a “whole civilization will die tonight, never to be brought back again.”
