A distant war with real consequences for Malaysia and Sabah

THE conflict involving Iran, the United States of America (USA) and Israel carries consequences that extend far beyond the Middle East. Although Malaysia lies thousands of kilometres from the war zone, the country remains closely connected to global systems of trade, finance and energy supply. Modern economies operate through complex international networks, meaning geopolitical tensions in one region often produce ripple effects worldwide. Escalation of war in the Middle East therefore influences Malaysia’s economic stability, diplomatic positioning and domestic social climate.

Sabah, rich in natural resources, shares many of these vulnerabilities. The state participates actively in international commodity markets and relies heavily on maritime trade for economic growth. Disruptions to global supply chains, shipping routes or energy prices therefore carry important implications for Sabah’s industries, rural communities and long-term development prospects. Understanding the implications of the Iran–USA–Israel war for Malaysia and Sabah requires attention to several interconnected issues, including global energy markets, inflation and cost of living, international trade, agricultural production, financial market stability and geopolitical diplomacy.

One of the immediate consequences of a large-scale conflict in the Middle East involves disruptions to global energy supply. The Strait of Hormuz, located between Iran and Oman, serves as one of the world’s critical oil transit corridors. Roughly twenty percent of global oil supply passes through this narrow maritime route each day. Military tensions in the region threaten tanker traffic and energy infrastructure, making the strait central to global energy security. Periods of conflict frequently trigger rapid increases in oil prices because traders anticipate potential supply shortages. Analysts have warned that prolonged confrontation in the Gulf region could push crude oil prices above US$100 per barrel, particularly if tanker routes face missile threats or naval blockades.

Malaysia occupies a distinctive position in this situation because the country functions both as an energy producer and a fuel-consuming economy. Through its national oil company, Petronas, Malaysia exports crude oil and liquefied natural gas to global markets. Higher oil prices therefore generate additional government revenue through export earnings, royalties and petroleum taxes. Economic estimates often suggest that every US$10 increase in crude oil prices can produce billions of ringgit in additional revenue for Malaysia’s national budget. When global oil prices surged during the Russia–Ukraine conflict in 2022, Malaysia recorded a noticeable rise in petroleum income. However, higher oil prices create fiscal pressure because Malaysia maintains subsidies for fuel products such as RON95 petrol and diesel used by transportation and logistics sectors. When global oil prices rise sharply, the government must allocate larger subsidies to maintain affordable domestic fuel prices. This situation produces a mixed outcome in which higher export revenue coincides with increased public expenditure.

Rising energy prices inevitably influence inflation and the cost of living. Fuel affects almost every sector of the economy because transportation, manufacturing and agriculture depend heavily on energy. When oil prices increase, transportation costs rise across industries such as aviation, shipping, logistics and public transport. Economists often describe fuel prices as a “cost multiplier” because increases in energy costs spread throughout supply chains. Higher diesel prices raise expenses for trucking companies transporting vegetables, seafood and agricultural products from rural farms to urban markets. Airlines likewise face higher jet fuel costs, leading to increased ticket prices while shipping companies pass on higher bunker fuel expenses through increased freight rates.

Malaysia’s dependence on imported food products and industrial materials intensifies these pressures. Wheat for bread production arrives from countries such as Australia and Canada while soybeans used in livestock feed often originate from Brazil and the USA. Dairy products, processed foods and manufacturing components reach Malaysia through international shipping networks as well. Rising fuel and freight costs therefore translate into higher import prices. For Malaysian households, these pressures may appear in the form of higher grocery bills, increased transportation costs and more expensive air travel. Restaurants may raise menu prices to offset higher ingredient expenses while retailers adjust prices to cover higher logistics costs. Although government subsidies or price controls may moderate short-term inflation, prolonged geopolitical conflict could sustain upward pressure on the cost of living.

Closely connected to inflationary pressures are disruptions to global trade and shipping. Malaysia ranks among the highly trade-dependent economies in Southeast Asia, with exports and imports accounting for a large share of the country’s gross domestic product. Maritime shipping therefore plays a crucial role in sustaining economic growth. Although most Malaysian trade flows through regional corridors such as the Strait of Malacca and the South China Sea, global shipping networks remain interconnected. Instability in the Middle East often affects insurance premiums and operational costs across international maritime routes.

The Iran–USA–Israel conflict has increased risks for vessels travelling through the Persian Gulf. Shipping companies operating in conflict zones frequently face higher insurance premiums owing to potential threats from missile attacks, naval confrontations or drone strikes. These additional costs eventually transfer to exporters and importers worldwide. For Malaysian exporters, especially manufacturers of electronics, palm oil, rubber products and semiconductors, rising shipping costs may reduce competitiveness in international markets. Companies exporting to Europe or the Middle East may encounter higher freight charges and longer delivery times. Malaysia’s electronics industry illustrates this vulnerability clearly. Semiconductor manufacturing hubs in Penang and Kulim depend on reliable logistics networks to ship components to markets in North America, Europe and East Asia. Disruptions to global shipping networks could therefore affect production schedules and export revenue.

These global economic shifts carry particular implications for Sabah’s resource-based economy. Sabah depends heavily on natural resources and agricultural commodities, including palm oil plantations, fisheries, timber production and petroleum resources. Global economic disruptions therefore influence the state in distinctive ways. One potential consequence of conflict in the Middle East involves rising fertiliser prices. Fertiliser production requires large quantities of natural gas, a key input for nitrogen-based fertilisers such as ammonia and urea. Many fertiliser producers rely on natural gas supplies originating from the Middle East. Disruptions to these supplies could therefore increase global fertiliser costs.

For Sabah’s palm oil plantations, higher fertiliser prices reduce profit margins and increase production expenses. Large plantation companies may absorb some of these costs temporarily but smallholders often face greater financial pressure. Rural farmers who depend on palm oil income could experience declining earnings if production costs rise faster than commodity prices. At the same time, Sabah’s offshore oil and gas sector may benefit from rising global oil prices. Higher prices could increase revenues for offshore energy projects operating in Sabah’s waters, potentially attracting additional investment from international energy companies seeking opportunities in Southeast Asia. Tourism constitutes another important sector in Sabah’s economy. Natural attractions such as Mount Kinabalu, Sipadan Island and the Kinabatangan River draw visitors from around the world. However, global conflicts often discourage international travel while rising airfares resulting from higher fuel prices could further reduce tourist arrivals, particularly from long-haul markets.

Another major concern relates to food security. Modern agriculture depends heavily on fuel, fertilisers and international supply chains. Disruptions in these systems can influence food availability and prices across the globe. Malaysia imports a substantial portion of its staple foods, including wheat, dairy products, beef and animal feed. Even rice production still relies partly on imports to meet national demand. When global energy prices increase, farmers worldwide face higher production costs for fertilisers, machinery fuel and irrigation systems. These higher costs eventually translate into higher global food prices, placing additional pressure on countries that depend heavily on food imports.

Sabah encounters particular challenges in this regard because many food supplies arrive from Peninsular Malaysia or international markets. Remote rural communities may experience stronger price increases owing to transportation costs, placing additional pressure on low-income households. Rising food prices therefore represent an important social and economic concern for both Sabah and Malaysia more broadly.

Geopolitical tensions often produce instability in financial markets as well. Investors frequently move capital toward safer assets during periods of uncertainty. Gold prices often rise during geopolitical crises while government bonds from stable economies attract increased demand. Stock markets across Asia may similarly experience volatility as investors react to developments in the Middle East. Malaysian equities linked to global trade and manufacturing could fluctuate according to changes in investor sentiment. However, rising energy prices may benefit certain sectors, particularly oil and gas companies listed on Bursa Malaysia, whose performance tends to strengthen when global oil prices increase.

Beyond economic considerations, the conflict carries diplomatic implications for Malaysia as well. The country traditionally pursues a foreign policy emphasising peaceful conflict resolution, respect for international law and multilateral cooperation. The Iran–USA–Israel war places Malaysia in a complex diplomatic environment. Malaysia has historically voiced support for Palestinian rights while maintaining economic relationships with Western nations, including the USA and European partners. Policymakers must therefore balance domestic public opinion with broader diplomatic considerations. Regional cooperation through ASEAN plays an equally important role because Southeast Asian countries share concerns regarding energy security, economic stability and supply chain resilience.

Taken together, the Iran–USA–Israel war highlights several strategic lessons for Malaysia and Sabah. The conflict demonstrates the vulnerability of global energy supply chains, showing the way disruptions in distant regions can affect economies across the world. Diversifying energy sources through investments in renewable technologies such as solar power and hydropower could reduce dependence on volatile oil markets. Strengthening domestic agriculture and diversifying food import sources may further enhance national food security while diplomatic engagement and regional cooperation remain essential tools for navigating complex geopolitical tensions.

Although the Iran–USA–Israel war occurs thousands of kilometres away, its consequences extend across the global economic system. For Malaysia and Sabah, the conflict brings both opportunities and risks. Rising oil prices may increase national energy revenues, yet inflationary pressure, shipping disruptions and food security challenges present serious concerns. Sabah’s resource-based economy faces particular exposure to global commodity markets, especially in agriculture and petroleum production while Malaysia’s export-driven economy depends heavily on stable trade routes and predictable global markets. In an increasingly interconnected world, regional conflicts can quickly evolve into global economic shocks. Strengthening energy security, supporting domestic agriculture and maintaining balanced diplomacy will therefore remain essential for Malaysia and Sabah as they navigate the uncertainties of an evolving global landscape.

Dr Richard A. Gontusan is a Human Resource Skills Training and Investment Consultant. He holds a Master’s Degree in Economics from the Southern Illinois University at Carbondale, USA. His views expressed in this article are not necessarily the views of The Borneo Post.