RAM’s Trade Unpacked Series Part 4: Alternative oil supplies ease Middle East shortages for Malaysia, but economic pressure remains

Published on 14 Sep 2026.

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RAM Ratings has published Part 4 of its Trade Unpacked series, analysing the impact of the closure of the Strait of Hormuz on global oil supply and its implications for Malaysia’s economy.

The 2026 US-Iran conflict shocked global energy markets following disruptions to oil flows through the Strait of Hormuz, a critical maritime chokepoint that normally carries around one-fifth of global oil supply. While diversions through oil pipelines to alternative export routes and petroleum reserve drawdowns have helped alleviate some supply shortages, global oil flows remain significantly below pre-conflict levels. Global oil production has also fallen amid oil infrastructure damage and shutdowns among key Middle Eastern producers, with recent attacks on key energy assets adding more downside risks to production. As a result, global economic growth and oil production are expected to moderate in 2026 before recovering in 2027. For Malaysia, the impact will likely be felt primarily through higher oil prices, while direct trade disruptions are expected to be relatively moderate.

Malaysia’s vulnerability to the supply shock stems from its dependence on imported Middle Eastern crude oil, which accounted for 69% of crude imports in 2025. Following the onset of the US-Iran conflict, Malaysia has managed to partially offset reduced crude oil imports from the Middle East by increasing purchases from alternative suppliers, particularly African producers such as Cameroon and Angola. At the same time, Malaysia benefits from being a net exporter of refined petroleum products and natural gas, providing an important structural buffer against external shocks. That said, any disruption to imported crude supplies could constrain Malaysia’s refinery operations, as refineries depend on imported heavier sour crude instead of the light sweet crude oil that Malaysia produces as their feedstock.

An input-output analysis suggests Malaysia's direct economic dependence on value added from Egypt, Jordan, Saudi Arabia, and the UAE is relatively low, with a hypothetical 10% decline in value added from these economies estimated to lead to a 0.16% decline in Malaysia’s final demand. Similar patterns are observed in Malaysia’s gross imports and gross exports. However, these results may underestimate the systemic importance of Middle Eastern inputs, particularly crude oil, given its role as a critical input whose significance could extend beyond its measured value-added contribution. More importantly, sustained elevated oil prices would likely raise production and transportation costs globally across a wide range of sectors. While existing fuel subsidies in Malaysia help shield consumers from direct fuel price increases, greater cost pressures may ultimately feed into broader consumer prices and potentially weigh on domestic consumption momentum. Should global crude oil prices stay elevated at around USD100-USD120/barrel, we estimate that Malaysia's GDP growth could potentially be reduced by around 0.3ppts-0.5ppts on an annualised basis.

While Malaysia possesses several buffers that mitigate its direct exposure to the conflict, the economy remains vulnerable to the indirect effects of sustained higher oil prices through rising production costs, inflationary pressures and weaker domestic demand. As such, developments in the global energy markets remain a key risk to Malaysia's economic outlook.

RAM’s report series Trade Unpacked is available for download at www.ram.com.my.

 

Analytical contacts Nur Nadia Mazlan (603) 2708 8287 nadia@ram.com.my		Media contact Sakinah Arifin (603) 2708 8212 sakinah@ram.com.my
Woon Khai Jhek, CFA (603) 2708 8286 khaijhek@ram.com.my

 

About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Credit Rating Agencies. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

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