When neutrality pays: How Malaysia is navigating the global fuel crisis

KUALA LUMPUR, Aug 13 — With no end in sight, the war between the United States and Iran has left countries scrambling to shore up their fuel supplies and secure alternative sources of energy.

The Strait of Hormuz, a crucial route carrying about one-fifth of global oil and liquefied natural gas flows, has remained severely disrupted since the conflict erupted in late February.

Almost 40 per cent of Malaysia’s crude oil imports pass through the waterway, making any prolonged disruption a significant concern for the country’s energy security.

Malaysia, a net importer of crude oil, produces about 350,000 barrels of oil a day but consumes about 700,000 barrels, according to the Finance Ministry.

Malaysia also subsidises fuel for domestic consumption, keeping pump prices below those in some major oil-producing countries such as Saudi Arabia and Qatar.

Fuel subsidy spending surged from nearly RM800 million a month in January and February to around RM5 billion a month in March and April after global oil prices spiked following the outbreak of the war.

If high global oil prices persist, the country could face an overall fuel subsidy bill of about RM40 billion by the end of 2026.

Despite the pressure, Malaysia is turning the energy crunch into an opportunity to strengthen its diplomatic relationships, leveraging its long-held policy of neutrality and non-alignment.

Three developments illustrate how.

First, safe passage for Malaysian vessels through Hormuz

Malaysia maintains diplomatic relations with Iran despite their different political and sectarian orientations, while continuing to engage with Tehran through diplomatic channels.

On March 1, Prime Minister Datuk Seri Anwar Ibrahim condemned the Israeli and US strikes against Iran, including the killing of Supreme Leader Ayatollah Ali Khamenei as “barbaric and illegal” and urged for an immediate ceasefire.

Those diplomatic ties proved useful when the energy crisis hit home.

Iran subsequently cleared seven Malaysian-owned vessels to transit the Strait of Hormuz for free due to Malaysia being a ‘friendly nation’, Transport Minister Anthony Loke told Bernama on March 31, citing Iran’s Ambassador to Malaysia Valiollah Mohammadi.

Malaysia again benefited from its diplomatic ties when a Petronas vessel sailing from Yanbu, Saudi Arabia, was cleared to transit the Red Sea in July, after the Iran-backed Houthis threatened to restrict passage through the Bab el-Mandeb Strait. 

Anwar confirmed this on July 25 and said the Petronas-owned ship is slated to arrive in Melaka this month.  

Second, securing longer-term supplies from friendly partners

Malaysia currently has sufficient fuel supplies and is working to secure longer-term stocks as the global energy crisis continues.

In doing so, the country is leveraging its broad diplomatic relationships with Russia and Central Asian countries to explore new energy sources and supply arrangements.

During Anwar’s maiden visit to Turkmenistan in June, national oil company Petronas secured rights to operate Blocks 9 and 10 in one of the country’s major gas-producing areas.

Petronas is expected to begin exploratory drilling there in December.

That same month, Russia pledged to provide Malaysia with long-term supplies of petrol, diesel and gas for at least 20 years, with the arrangement being finalised between the two countries.

The development comes as Malaysia continues its policy of non-alignment and has not joined Western sanctions against Russia over its invasion of Ukraine.

Third, using energy security to strengthen regional ties

Even as it navigates the energy crunch, Malaysia continues to maintain energy supply relationships with partners that are also seeking greater security amid global market uncertainty.

In June, Anwar announced that Petronas would supply up to two million tonnes of liquefied natural gas (LNG) a year to Japan’s largest power generation company, Jera, over a 20-year period starting in 2028.

Prior to that, he told his Australian counterpart Anthony Albanese in April that Malaysia would prioritise selling fuel surplus to Australia.

Anwar also said in June that Malaysia’s diesel surplus could be used to assist countries in need, including Timor-Leste, which became Asean’s 11th member last year.

Taken together, the developments underscore how Malaysia’s non-aligned foreign policy has given it room to maintain relationships across geopolitical divides while securing energy supplies and supporting regional partners during a period of heightened uncertainty.