The escalation of conflict in the Middle East following the US and Israel’s military strike against Iran at the weekend has created significant uncertainty in global markets.
While the conflict is geographically distant from Malaysia, its economic and business implications could be substantial due to Malaysia’s deep integration into global trade and supply chains.
For Malaysia, direct economic exposure to Iran remains relatively limited. Bilateral trade between Malaysia and Iran amounted to approximately RM2.6 billion in 2024, representing only a small share of Malaysia’s overall trade.
As such, the primary risks for Malaysia arise not from direct trade disruption but from indirect economic channels, including fluctuations in global oil prices, higher shipping and insurance costs, disruptions in aviation and logistics networks, shifts in international capital flows and exchange rate volatility.
Energy price impact
One of the most immediate impacts is through global energy prices. As an oil and natural gas exporter, Malaysia may benefit from rising oil prices in the short term. Petronas is expected to maintain production of about two million barrels of oil equivalent per day in 2026.
Higher oil prices could therefore increase government revenues and provide some fiscal support.
However, the economic impact of rising energy prices is complex. Higher oil prices tend to raise global production costs, which may weaken demand in Malaysia’s major export markets such as the US, Europe, and China.
This could reduce external demand for Malaysian exports, particularly in manufacturing sectors such as electronics and electrical products.
At the domestic level, higher global energy prices may also increase the government’s subsidy burden and potentially lead to higher petrol and electricity prices.
Rising transportation and energy costs could gradually feed into broader inflation, increasing operating costs for businesses and living costs for households.
Malaysia's PM Anwar Ibrahim said that the joint US-Israeli strikes on Iran will "bring the Middle East to the edge of catastrophe," urging the US and Iran to pursue a diplomatic solution rather than further escalation. pic.twitter.com/eSFeWhxaiz
— Al Jazeera English (@AJEnglish) February 28, 2026
Threat of shipping disruption
Shipping and logistics disruptions represent another important channel of impact. The Strait of Hormuz is one of the world’s most critical energy transport routes, carrying approximately 20% of global oil shipments. Any disruption or heightened security risk in this region increases maritime insurance costs and shipping rates.
War-risk insurance premiums have already risen significantly, while charter rates for large oil tankers have surged.
For Malaysia, a highly trade-dependent economy, these developments could lead to higher import and export logistics costs. Imported goods ranging from electronic components to machinery and consumer products may become more expensive and take longer to arrive.
This has important implications for Malaysian businesses, particularly those that rely heavily on imported intermediate goods. Manufacturers in sectors such as electronics, automotive components, chemicals and machinery could face higher input costs and longer supply chain delays.
Risk of lower external demand
At the same time, weakening global economic confidence may reduce external demand. Malaysia’s export-oriented industries including electronics and electrical products, palm oil, rubber-based products, chemicals and metal manufacturing may face declining order visibility if global growth slows.
Such uncertainty may lead firms to adopt more cautious strategies, including reducing overtime, slowing hiring plans and delaying investment decisions.
Currency movements may also affect Malaysian businesses and consumers. Although rising oil prices can theoretically support the ringgit, global geopolitical tensions typically drive investors toward safe-haven assets such as the US dollar.
As a result, emerging market currencies including the ringgit often face depreciation pressure during periods of heightened global uncertainty.
A weaker ringgit would make imported goods and foreign-denominated expenses more expensive, affecting both firms and households. Businesses importing machinery, technology and raw materials would face higher costs, while consumers may pay more for imported electronics, vehicles and overseas travel.
Heightened tensions raise focus on Strait of Hormuz traffic
— MarineTraffic (@MarineTraffic) February 28, 2026
Escalating military developments between the United States and Iran have intensified global attention on the Strait of Hormuz, one of the world’s most critical maritime chokepoints. Amid reports of missile strikes and… pic.twitter.com/6CAKaMsiUX
Escalation adds layer of uncertainty
More broadly, the global economic environment was already fragile due to supply chain restructuring, trade tensions and elevated interest rates. The escalation of conflict in the Middle East adds another layer of uncertainty that could weaken global trade and investment sentiment.
For a small and open economy like Malaysia, whose total trade exceeded RM3 trillion in 2025, external shocks can quickly transmit through trade, finance and supply chain networks. Malaysia’s economic performance is therefore closely linked to global stability.
Despite these challenges, Malaysia does possess several structural advantages that may help cushion the impact. The country benefits from continued oil and gas revenues, a diversified export base, a relatively resilient domestic consumer market and ongoing industrial upgrading initiatives.
If policymakers are able to maintain macroeconomic stability, particularly by managing fiscal pressures, ensuring supply chain resilience, stabilising the currency and containing inflation, Malaysia should still be able to sustain moderate economic growth despite the heightened global uncertainty.
