Higher oil prices temporarily supports Malaysia's economy: economist

Kuala Lumpur - The Russia-Ukraine tension appears to benefit Malaysia's position as a net oil exporter and the sharp rise in oil prices will provide temporary support for the country's fiscal position, according to World Bank senior country economist Shakira Teh Sharifuddin.

She said that the outlook remained cautious due to the possibility of the emergence of a new and severe COVID-19 variant, adding the reopening of Malaysia’s border drives the economy going forward.

Earlier, Renato Lima de Oliveira, an assistant professor at the Asia School of Business, said as a net exporter of oil and gas, Malaysia could benefit from the price increases.

He explained that long-term liquefied natural gas (LNG) prices tend to be linked to crude oil contracts. Therefore, higher crude prices are beneficial.

Furthermore, Malaysia spends a lot on fuel subsidies which have fiscal costs. If subsidies were cut, it will essentially allow gasoline prices to go up, and the fiscal benefits will be higher.

In addition, the higher oil and gas prices are advantageous due to the taxes from the oil extracted in the country. The profits can then be returned to shareholders, the Malaysian government, or used for further investment.

The scholar warned that the price spikes may be short-lived, adding that Malaysia’s exports to Russia and Ukraine, from electronic equipment to palm oil, will likely to suffer.