Iran-Israel conflict could see Malaysians pay more for groceries

Food prices in Malaysia could go up by 10% if global oil prices hit US$110, says Barjoyai Bardai.

PETALING JAYA: Malaysians could end up paying more for groceries if tensions in the Middle East continue to escalate, economists have warned.

Malaysia University of Science and Technology’s Barjoyai Bardai, Putra Business School’s Razman Abdul Latiff and Sunway University’s Yeah Kim Leng say Malaysians will start feeling the pinch if the conflict between Israel and Iran were to push oil prices to US$120 per barrel.

Such a surge would trigger a hike in transportation and food costs, they say.

Barjoyai Bardai.

“Even if global oil prices hit US$110, food prices in Malaysia could go up by 10%,” Barjoyai told FMT.

He said although Malaysia is a net oil exporter, it will still be vulnerable to supply chain disruptions, especially if Iran moves to block the Strait of Hormuz which is a critical passage for global oil shipments.

“Logistics costs will go up, supply will be limited, and prices will rise.”

On Thursday, CNBC reported that crude oil futures rose more than 1% after Israeli prime minister Benjamin Netanyahu ordered the country’s military to intensify attacks against Iran.

On the same day, Prime Minister Anwar Ibrahim assured that the government will not raise the price of RON95 petrol, even if global crude oil prices were to increase sharply due to geopolitical tensions in the Middle East.

Barjoyai praised the government’s decision to maintain its current fuel subsidy structure, and its commitment to putting in place the targeted RON95 subsidy plan.

However, he said its implementation may have to be deferred.

“Because if oil prices go up, government expenditure will go up. Cost of goods will follow as businesses will factor in the higher transport costs.”

Ahmed Razman Abdul Latiff.

Razman said high oil prices would benefit national oil company Petronas and boost the country’s coffers. However, this would see an escalation in the government’s expenditure to maintain the fuel subsidy, he said.

“Fuel prices affect every industry. Operating costs will rise, and most businesses will pass that on to consumers.”

“Energy drives everything from transportation to food and housing. Malaysians should prepare for a tighter second half of the year,” he said, adding that even if inflation stays under 3%, the B40 and M40 groups will feel the squeeze.

Yeah Kim Leng.

Yeah said Malaysia, as a net oil exporter, stands to benefit from higher oil prices.

“If oil prices go up, the increased revenue from Petronas could help offset the subsidy burden. But government expenditure will be higher than revenue.”

He said a similar scenario was experienced in 2022, when oil hit around US$100.

“Our subsidy bill nearly tripled from RM20 billion to RM30 billion to triple the amount. If oil hits US$120, we could see a repeat.”

Yeah also warned that attacks on oil infrastructure and facilities, particularly involving Iran and Israel, could trigger a global shortage.

“If the Middle Eastern producers reduce output or if shipping routes in the Persian Gulf are disrupted, we’re looking at major supply shocks. Oil could easily shoot past US$100 a barrel.”

Yeah said such a scenario would have broad inflationary effects and could see consumers tightening their belts which could cause the economy to slow down.