KUALA LUMPUR, March 2 – The economic impact on Malaysia from the latest conflict in the Middle East could remain contained if tensions do not prolong, although near-term market volatility cannot be ruled out, economists said.
They said markets are likely to remain sensitive to oil price movements, geopolitical developments and shifts in global risk sentiment in the coming days.
CGS International Securities Malaysia chief economist Nazmi Idrus said markets had partly anticipated geopolitical developments, suggesting that investor positioning may already reflect elevated risks.
“The war has been somewhat expected so the market likely has positioned itself. If there is any over-reaction, it could be temporary,” he told Bernama.
Nazmi said it remains difficult to determine whether risk-off sentiment or higher crude prices would ultimately dominate currency movements, as much would depend on the duration and intensity of the conflict.
While higher oil prices could offset some of the disinflationary effects of a stronger ringgit, the overall impact on Malaysia’s gross domestic product, inflation and fiscal position could remain limited if tensions are not prolonged, he added.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said heightened geopolitical uncertainty could lead investors to reassess exposure to risk assets while keeping energy markets sensitive to supply disruption concerns.
He said the key variable for Malaysia would be how sustained any increase in crude prices proves to be, as prolonged elevation could influence inflation expectations and cost structures.
“The situation remains highly uncertain and much depends on how events unfold from here,” he said, adding that policymakers would likely monitor developments closely to assess second-round effects on prices and financial stability.
On the fiscal front, economist Dr Nungsari Ahmad Radhi cautioned that higher crude prices do not automatically translate into fiscal gains for the government.
“A rise in oil prices profits Petronas. But the cost of petrol subsidies also rises for government. What is the net effect? That depends on the elasticities,” he said, referring to how responsive dividend payments and subsidy expenditures are to changes in oil prices.
He added that it is too early to draw firm conclusions, saying that the broader economic implications would hinge on how long the conflict lasts and whether it spreads further.
Tensions in the Middle East escalated after the United States (US) and Israel launched strikes on Iran on Saturday, which Israel described as a “pre-emptive attack” against its long-time adversary to “eliminate threats”.
The attacks followed a significant build-up of US military presence in the region aimed at pressuring Tehran to scale back its nuclear programme, and came amid Iran’s crackdown on large-scale protests.
Prime Minister Datuk Seri Anwar Ibrahim has previously expressed deep concern over protracted global conflicts, describing them as a severe test to international peace.
Meanwhile, Economy Minister Akmal Nasrullah Mohd Nasir said the government will examine the economic impact of the attacks by Israel and the US on Iran, including Malaysia’s direct relationship with Iran and the broader geopolitical tensions affecting the global economy.
