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Report: Sakina Mohamed
KUALA LUMPUR, April 15 (Bernama) – Global energy shocks are not new. Wars, supply disruptions and economic crises have pushed oil prices higher time and again, often sharply and with little warning. The International Energy Agency notes that such disruptions have shaped oil markets for more than half a century.
From the Gulf War in the early 1990s to the surge in 2007–2008, and more recently the COVID-19 pandemic and the Russia–Ukraine conflict, the pattern is broadly consistent. Prices rise quickly when supply is threatened, but take longer to stabilise.
In 2008, oil prices climbed to nearly USD150 per barrel before collapsing during the global financial crisis. It took years for the market to settle, as demand weakened and supply gradually adjusted.
Past crises show that adjustment does happen, but not evenly. Demand reacts quickly to higher prices. Supply does not. New production takes time, and policy responses are often phased in. That gap is what keeps prices elevated longer than expected.
The events of 2020 underscored that imbalance. As the pandemic wiped out demand and filled storage capacity, global oil prices briefly fell below zero. Producers were forced to cut output sharply. Prices only stabilised after coordinated production cuts and a gradual recovery in consumption reduced the surplus.
The current situation reflects a similar imbalance, but under different conditions. Geopolitical tensions, particularly around key transit routes such as the Strait of Hormuz, have added a layer of risk to global energy markets. Roughly a fifth of the world’s oil supply passes through the Strait, making it highly sensitive to disruption.
When risks emerge in critical supply routes, prices tend to move almost immediately. Markets price in the possibility of disruption before any supply is lost, which is why volatility can persist even when flows remain unchanged.
The impact is already visible across Southeast Asia, but not evenly distributed. Analysis by global energy and commodities research firm Wood Mackenzie points to a structural vulnerability in the region: heavy reliance on imported crude and refined fuels leaves several economies exposed to prolonged price increases.
In Indonesia, higher global oil prices have translated directly into rising subsidy costs, forcing the government to allocate more fiscal resources to keep domestic fuel prices stable. In previous periods of elevated prices, this has significantly widened the country’s budget deficit and constrained spending elsewhere.
The Philippines faces a different pressure point. As a net energy importer with limited subsidy buffers, higher fuel costs tend to pass through more quickly to consumers, contributing to inflation and reducing household purchasing power.
Thailand, meanwhile, has relied on its oil fund to cushion price increases, but sustained high prices have previously strained the fund’s capacity, limiting its ability to stabilise domestic fuel costs over time.
These examples point to a common constraint. Governments can absorb higher costs for a period, but not indefinitely. Wood Mackenzie notes that in a sustained high-price environment, fiscal buffers tighten and the room to shield households and businesses narrows, particularly in economies with limited domestic energy capacity.
These pressures extend beyond government budgets. Higher oil prices feed directly into transport and manufacturing costs, raising input prices for businesses. Over time, these increases move through supply chains, contributing to broader inflation and affecting household spending.
Many Asian economies are particularly exposed because of their reliance on imported energy. Higher import bills can weaken trade balances and add pressure on currencies, which in turn raises domestic costs further.
Malaysia sits within this range. As both a net exporter of crude oil and a net importer of refined petroleum products, the country is affected from both sides. Higher prices can support upstream revenues, but they also increase subsidy costs and inflationary pressures at home. The net effect depends on how long prices remain elevated.
In most cases, a period of adjustment follows the initial shock. Markets respond quickly through price movements, but supply adjustments depend on physical production. New oil projects can take years to develop, and policy responses such as subsidy changes or output cuts are typically introduced in stages.
In past crises, production cuts by major oil producers, including the Organisation of the Petroleum Exporting Countries and its partners, have helped stabilise markets. These measures, however, take time to offset disruptions and rarely bring immediate relief.
As a result, recovery tends to be gradual. Even after the initial shock subsides, it can take longer for supply chains, pricing structures and economic activity to settle into a new balance.
Energy markets will adjust, as they have in past crises. But the adjustment is rarely immediate. With supply risks still present and costs already rising across the region, price pressures are likely to persist in the near term.
-- BERNAMA