Prolonged Middle East conflict could trigger inflation, disrupt supply chains, says Sheda advisor

KUCHING (March 13): The escalating conflict in the Middle East could have significant economic repercussions for Malaysia and Sarawak if it persists, with rising costs and supply disruptions threatening key sectors and livelihoods, said Sarawak Housing and Real Estate Developers’ Association (Sheda) advisor Dato Sim Kiang Chiok.

He said while Malaysia may initially benefit from higher oil and gas revenues due to surging global energy prices, these gains could be offset by ‘cost-push’ inflation, placing heavy pressure on domestic industries.

“Prolonged geopolitical tensions involving countries such as Iran, Israel and the United States risk triggering a chain reaction across global trade and logistics networks,” he said.

Sim highlighted that Malaysia’s Electrical and Electronic (E&E) sector ― a key pillar of the country’s industrial development ― is already facing shipment delays and rising raw material costs due to disruptions in global supply chains.

“Logistics providers are contending with higher fuel prices and maritime insurance premiums, while the aviation sector also faces increased operational costs, including fuel surcharges and rerouted flight paths, which may lead to higher airfares,” Sim said.

He cautioned that prolonged conflict could trigger inflationary pressure in Malaysia.

“Although Bank Negara Malaysia has kept the Overnight Policy Rate at 2.75 per cent for now, continued global instability may compel the central bank to raise interest rates in order to stabilise the ringgit, adding financial strain on small businesses and households servicing mortgages,” Sim added.

Emphasising the need to protect consumers, Sim urged the federal government to maintain existing fuel subsidies.

“It is crucial that RON95 petrol remains at RM1.99 per litre under the Budi Madani RON95 (Budi95) initiative rollout.

“Removing the cap amid global price surges could lead to an uncontrollable spike in the cost of living,” he said.

Sim also called for the retention of Sarawak’s diesel ceiling price of RM2.15 per litre, noting the state’s reliance on land and river transportation.

“Affordable diesel is essential for farmers, logistics operators and rural communities,” he added.

At the international level, Sim called on global powers, particularly the United States, to intensify diplomatic efforts to resolve the conflict swiftly.

“A rapid end to hostilities is crucial to restore stability in global trade flows, which economies like Sarawak heavily depend on,” he said.

In response to the uncertain global economic environment, the federal government has announced that all ministries, government agencies, and government-linked companies (GLCs) will not hold Aidilfitri open house celebrations this year.

Prime Minister Datuk Seri Anwar Ibrahim said the move is aimed at promoting fiscal discipline and signalling prudent spending amid global economic uncertainty.

“This sends a clear message that public spending should be more moderate,” Anwar said during a special press conference on Tuesday.

He added that the government prefers to take early precautionary measures rather than risk being caught unprepared should the global situation worsen, despite Malaysia’s current supply of essential goods such as oil and gas remaining stable.