‘Hor­muz sta­bil­ity unlikely to instantly relieve fuel costs’

Mul­tiple factors con­trib­ut­ing to con­tin­ued elev­ated prices: Eco­nom­ist

PETALING JAYA: Sta­bil­ising traffic through the Strait of Hor­muz is unlikely to bring imme­di­ate relief to fuel prices, with eco­nom­ists say­ing deeper struc­tural pres­sures, from geo­pol­it­ical risks to tight invent­or­ies, would keep crude and diesel costs elev­ated.

Des­pite improv­ing ship­ping flows through one of the world’s most crit­ical energy choke­points, experts say global mar­kets con­tinue to price in risk, lim­it­ing any near-term decline in prices.

Uni­versiti Tekno­logi Mara eco­nom­ist Dr Moha­mad Idham Md Razak said crude and diesel prices are unlikely to ease sig­ni­fic­antly even as ship­ping activ­ity through the strait gradu­ally nor­m­al­ises.

“Mar­kets con­tinue to factor in risk premi­ums, tight invent­or­ies and the pos­sib­il­ity of fur­ther dis­rup­tions.

“While some eas­ing may occur in the com­ing weeks if flows con­tinue to sta­bil­ise, prices are expec­ted to remain elev­ated over the next one to three months before gradu­ally mod­er­at­ing later in the year as sup­ply rebuilds and invent­or­ies recover.”

He added that in Malay­sia’s case, any cost sav­ings from improved ship­ping con­di­tions are unlikely to be fully passed on to con­sumers, as the gov­ern­ment may retain part of the gains to ease its sub­sidy bur­den after a period of elev­ated spend­ing.

“Such an approach is com­mon, in which short-term sav­ings are used to rebuild fiscal buf­fers rather than trans­lat­ing dir­ectly into lower pump prices, par­tic­u­larly for con­trolled fuels.”

He also said sev­eral factors could con­tinue to keep prices elev­ated, includ­ing tight global invent­or­ies, ongo­ing geo­pol­it­ical uncer­tainty and sus­tained regional demand, par­tic­u­larly from Asia.

“Diesel prices are also more sens­it­ive to sup­ply dis­rup­tions and have risen faster than crude due to refin­ing and logist­ics con­straints,” he said, adding that even lim­ited dis­rup­tions or renewed ten­sions could con­trib­ute to a risk premium in energy mar­kets.

Moha­mad Idham said retain­ing part of any sav­ings would sup­port broader fiscal con­sol­id­a­tion efforts, adding that sub­sidy expendit­ures had surged dur­ing peri­ods of high oil prices.

Uni­versiti Kuala Lum­pur Busi­ness School eco­nom­ist Assoc Prof Dr Aimi Zul­hazmi Abdul Rashid said secur­ing crude oil sup­ply from Gulf Cooper­a­tion Coun­cil coun­tries offers short-term assur­ance, but does little to shield Malay­sia from elev­ated global prices.

He said crude prices remain closely tied to devel­op­ments sur­round­ing the Iran crisis, with any de-escal­a­tion unlikely to trig­ger a sharp cor­rec­tion.

“Even if ten­sions sub­side, prices are not expec­ted to fall sig­ni­fic­antly due to the dam­age already caused by the attacks.”

He added that Malay­sia would con­tinue to pro­cure crude at pre­vail­ing global mar­ket rates, des­pite smoother pas­sage for its ves­sels through the Strait of Hor­muz.

“This only secures the oil tanker trans­port route for Malay­sia – pri­cing remains dic­tated by global mar­kets.”

Taylor’s Uni­versity research cluster lead for innov­at­ive man­age­ment prac­tices Prof Dr Poon Wai Ching said the safe pas­sage of Malay­sian ves­sels through the strait is a pos­it­ive dip­lo­matic devel­op­ment, but has lim­ited impact on global energy prices.

She said struc­tural con­straints, par­tic­u­larly on the sup­ply side, con­tinue to under­pin high crude and refined fuel prices.

“While this eases a spe­cific logist­ical con­straint for Malay­sia, it does not mater­i­ally resolve the broader sup­ply dis­rup­tions affect­ing global mar­kets. Attrib­ut­ing price volat­il­ity solely to Strait of Hor­muz dis­rup­tions would be an over­sim­pli­fic­a­tion.”

She added that refin­ing capa­city con­straints and uneven dis­tri­bu­tion of pro­cessing facil­it­ies con­tinue to amp­lify shocks in down­stream mar­kets, par­tic­u­larly for diesel.

She also poin­ted to dam­age to pro­duc­tion infra­struc­ture in key Gulf states, which has fur­ther delayed sup­ply recov­ery.

“Full res­tor­a­tion of out­put could take months, even if geo­pol­it­ical ten­sions ease. Any sta­bil­isa­tion in prices should be seen as rel­at­ive rather than a return to pre-crisis levels, as mul­tiple risks con­tinue to sup­port a per­sist­ent premium in global energy mar­kets.

“In this envir­on­ment, a rapid rever­sion to earlier price levels is highly unlikely,” she said, adding that future price move­ments would depend on geo­pol­it­ical devel­op­ments, the pace of infra­struc­ture repair and broader sup­ply­de­mand rebal­an­cing.

On the domestic front, Poon said pro­longed energy price volat­il­ity would con­tinue to feed into infla­tion, par­tic­u­larly through trans­port, food and logist­ics costs.