Middle East Tensions Rattle Markets; Malaysia’s Strong Fundamentals Offer Buffer, Says Economist

By Rosemarie Khoo Mohd Sani

KUALA LUMPUR, March 4 (Bernama) -- The Middle East conflict, particularly disruptions along the Strait of Hormuz, has triggered heightened volatility in global markets, with investors shifting towards safe-haven assets amid concerns over energy supply security.

IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said that Malaysia’s strong economic fundamentals, however, provide a buffer against external shocks, even as capital market sentiment turned cautious over the past 72 hours amid intensifying uncertainties surrounding oil flows.

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“Sentiment has changed and people are shifting their investment portfolios into safe-haven assets such as the US dollar and gold," he said during the Bernama World programme titled “Global Markets on Edge Amid Energy and Geopolitical Tensions” on Bernama TV today.

Mohd Sedek said that while the strait has not been formally declared closed, commercial flows are severely disrupted, causing a partial shutdown.

He noted the strait facilitated the transport of roughly one-fifth of global oil consumption, with 20 million to 30 million barrels per day transiting through it. 

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Based on shipping and trade flow estimates, about 20.5 million barrels of crude oil and fuels have been affected, translating into about US$1.68 billion (US$1=RM3.94) in daily trade value.

He further said oil has been repriced higher by between US$5 and US$10 per barrel, hovering around US$80 to US$85 per barrel, while insurance-related costs have surged as underwriters reassess coverage in the region.

Even with the reported move by the United States (US) to deploy naval escorts for oil tankers, logistical and insurance constraints remain key bottlenecks.

“Although there are escorting measures, insurance companies are now attempting to exclude the Middle East under their coverage,” he said.

Inflation Impact Gradual, Not Immediate

On the domestic front, Mohd Sedek said the transmission of higher oil prices to consumers would not be immediate.

“The first impact is on logistics and transportation costs rather than directly on retail fuel prices. 

“The pass-through to households usually takes around three to six months, depending on how long the conflict persists,” he said.

He also said that the more immediate impact on Malaysians would be through currency movements, as emerging market currencies typically weaken during a geopolitical crisis. 

However, the ringgit, which has strengthened over the past two years supported by improved fundamentals and external balances, would provide a buffer against imported inflation in the short term, he said.

“Malaysia’s fuel pricing mechanisms, including the RON95 subsidy and targeted diesel schemes, would also help cushion immediate shocks to household fuel costs,” said Mohd Sedek.

Nonetheless, he said, Malaysia is not fully insulated, as many domestically produced goods rely on imported intermediate inputs such as raw materials, packaging and machinery.

“If businesses face higher import costs due to elevated energy prices or shipping disruptions, they will eventually adjust prices. This typically appears with a lag of three to six months,” he said.

He also projected that headline inflation could drift modestly higher towards around 2.2 per cent by year-end, assuming tensions do not escalate significantly further.

Global Growth Risks Tilted to the Downside

On the broader economic outlook, Mohd Sedek said prolonged disruptions could weigh on global growth.

Referring to projections by the International Monetary Fund (IMF), global gross domestic product growth for 2026 is currently forecast at about 3.3 per cent, but it could ease to between 2.7 and 2.8 per cent if Middle East tensions persist.

However, he said that the impact is likely to be regionally concentrated rather than uniformly affecting all major economies.

“The effect will be more focused on the Middle East rather than escalating to Asia, Europe or North America,” he said.

He also said that prolonged uncertainty could delay corporate investment decisions and hiring plans, particularly in energy-related upstream and downstream sectors, while consumer and technology sectors may see comparatively limited impact.

Mohd Sedek described the current conflict as among the most serious in the Middle East since 1980, underscoring the need for investors to remain vigilant.

“Prolonged disruptions will amplify second-round effects. For now, markets are reacting to risk premiums, but the duration of the conflict will determine the scale of economic consequences,” he added.

-- BERNAMA