RENEWED US-IRAN CONFLICT FUELING MARKET VOLATILITY, RAISING OIL PRICES AND FOREX RISKS

By Harizah Hanim Mohamed & Muhammad Fawwaz Thaqif Nor Afandi

KUALA LUMPUR, March 1 (Bernama) -- Global markets turned cautious on Sunday following the latest United States military action against Iran, with economists warning that heightened geopolitical risks due to the situation in the Middle East could reinforce risk-off sentiment and affect oil prices, the ringgit, and trade flows, said analysts.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the renewed conflict injects fresh uncertainty into global trade, particularly through its direct impact on energy markets.

At the time of writing, WTI crude was up 2.78 per cent at US$67.02 per barrel, while Brent crude rose 2.87 per cent to US$72.87 per barrel.

“The key concern is the duration of the military campaign and potential retaliation, particularly against US military bases in the Gulf region.

“If the conflict escalates further, crude prices could test US$80 per barrel or even approach US$100, given the high degree of uncertainty,” he told Bernama.

Assessing the effects on Malaysia, Mohd Afzanizam said immediate worries focus on fuel prices and inflationary pressures.

“Malaysia’s subsidy scheme can cushion the short-term impact, but a prolonged crisis could strain the government’s fiscal position as subsidies would need to be extended,” he added.

On the currency front, he noted that risk-off conditions typically strengthen the US dollar as investors seek safe-haven assets.

“However, given current market dynamics, precious metals such as gold may also benefit.

The ringgit ended the week firmer against the US dollar, closing at 3.8910 on Friday compared with 3.8995 last Friday. The local note also traded mostly higher against a basket of major currencies this week.

“The downside to global growth has heightened. Disruptions to shipping routes or rerouting by airlines to avoid conflict zones could raise logistics costs, affecting trade and overall economic activity,” he added.

Regarding economic forecasts, Mohd Afzanizam said revisions may become more frequent as the situation remains fluid.

“If Iran endures the assault and receives support from its allies, the scale of the conflict could increase and prolong itself. For now, it is a wait-and-see scenario,” he said.

Echoing the sentiment, Centre for Market Education chief executive officer Dr Carmelo Ferlito said oil prices could rise further amid concerns over potential supply disruptions in the Middle East, particularly around the strategic Strait of Hormuz.

“Even without an actual supply shock, heightened risk perception alone can drive prices upward through precautionary buying and speculative activity,” he said.

As a net oil and gas exporter, Malaysia could see short-term fiscal gains and support for the ringgit from higher export revenues if crude prices rise.

“However, sustained volatility may increase production costs and uncertainty, which can offset initial gains. What matters is not just higher prices, but stability and predictability,” he added.

Ferlito highlighted that geopolitical tensions also tend to push investors toward safe-haven assets, strengthening the US dollar.

“A stronger dollar could pressure the ringgit, particularly if capital flows reverse from emerging markets,” he said.

He warned that any escalation that disrupts shipping routes, raises insurance and freight costs, or triggers retaliatory sanctions could indirectly affect Malaysia’s trade flows.

“For an open economy like Malaysia, prolonged uncertainty and geopolitical fragmentation are more damaging than clear and stable rules of engagement,” he said.

-- BERNAMA