Control, scale at stake in S’wak-Petronas dispute, says analyst

Samirul Ariff Othman says fragmentation would weaken the national system’s resilience to price volatility, geopolitical shocks and shifts in global energy finance.

Samirul Ariff Othman, an analyst of global politics, business and economics and an adjunct lecturer at Universiti Teknologi Petronas (UTP) warns that an escalated battle for ownership and authority over offshore resources risks weakening Petronas’s competitiveness globally.

He said much of the public debate to date has been incorrectly framed as a fight over oil revenue and ownership of resources.

“That framing is intuitive, but incomplete,” he said.

“The more consequential question is not who owns the oil, but who controls the system through which Malaysia’s hydrocarbons are developed, monetised, insured, financed, and projected internationally.”

The debate intensified after both Petronas and the Sarawak government filed lawsuits relating to the dispute recently.

On Jan 12, the national oil company filed a motion in the Federal Court seeking clarity over the applicable regulatory framework governing its operations in Sarawak.

Meanwhile, on Feb 23 Sarawak filed a petition challenging the validity of the Petroleum Development Act 1974 (PDA), the Continental Shelf Act 1966 and the Petroleum Mining Act 1966, and their applicability to the state.

Sarawak contends that these laws encroach upon its rights to petroleum resources located in the seabed of the continental shelf, which, it claims, fall within its boundaries.

The state, which has its own oil and gas company (Petros), wants the apex court to decide which entity holds authority over resources found off Sarawak’s shores.

Samirul said the Petronas–Petros debate should be viewed as a contest over “system order” rather than simply a dispute about extraction rights.

“Oil matters in Malaysia primarily as a lever within a wider architecture of power,” he said.

“Influence over scale, balance sheets, contractual credibility, market access and geopolitical insulation matters more than formal title to resources.”

According to him, Petronas has until now served as the country’s “system integrator” – the entity that pools resources, spreads risk, secures financing, negotiates with international partners and projects reliability in global markets.

“Fragmenting that role does not merely redistribute income; it alters Malaysia’s position within the global system,” he said.

“It affects how counterparties perceive risk, how insurers price exposure, how financiers assess scale, and how buyers evaluate long-term supply security.”

Samirul argued that Malaysia’s energy influence has never been derived solely from large reserves.

Instead, it comes from the country’s connectivity to global markets and the scale achieved by consolidating oil and gas management under a single national company.

“By pooling relatively modest reserves into a single national platform, Malaysia achieved scale, credibility and bargaining power in a global industry dominated by giants,” said Samirul.

He warned that weakening the central role of Petronas could undermine the resilience of Malaysia’s energy system, especially in an increasingly volatile global environment.

“The risk is not that greater state participation weakens the federation per se. The risk is that uncoordinated fragmentation weakens the national system’s resilience – its ability to withstand price volatility, geopolitical shocks or shifts in global energy finance.”

Samirul said the debate should not be reduced to a zero-sum political contest between federal and state interests.

“None of this negates legitimate state interests, constitutional debates, or the need for fair revenue distribution,” he insisted.

“But grand strategy is shaped by structural pressures rather than slogans. Market confidence, alliance perception and institutional continuity constrain choices even when legal authority exists.”

He added that Malaysia’s increasingly fragmented political landscape had given Sabah and Sarawak greater leverage in federal government formation, making the energy debate more consequential.

“When heightened political leverage converges with demands for greater control over strategic hydrocarbons, the debate begins to shift from fiscal participation toward systemic authority,” he said.

“At that point, the question ceases to be how revenues are shared and becomes who exercises control over the architecture through which power flows.”

Samirul said the challenge facing Malaysia was not in choosing between federal or state control, but in designing a system that preserves scale, credibility and resilience.

“The Petronas–Petros debate is not, at its core, about oil versus non-oil, nor federal versus state pride, It is about system dominance versus system vulnerability.

“Power today resides in the ability to shape flows of capital, contracts, technology and trust – not merely in allocating barrels,” said Samirul.