Foreign policy likely to become more cautious, focused on avoiding over-reliance on any single major power, says expert
PETALING JAYA: Malaysia’s long-standing stance of neutrality is under pressure as rising global tensions force the administration to rethink how it safeguards sovereignty, economic stability and foreign policy autonomy, say experts.
International Islamic University Malaysia Ahmad Ibrahim Kulliyyah of Laws deputy dean Assoc Prof Dr Mohd Yazid Zul Kepli said recent developments under United States (US) President Donald Trump’s administration show that traditional diplomatic positions are becoming harder for small, open economies to sustain.
“Strategic diplomacy, supplemented with new coalitions and new strategies, is becoming unavoidable,” he said, adding that the global environment is growing less forgiving of countries trying to stay neutral.
Mohd Yazid said Malaysia’s foreign policy is likely to become more cautious and focused on avoiding over-reliance on any single major power.
“Malaysia will try to diversify its trade and security partners, rely more on multilateral rules for protection and keep its ties with the US pragmatic and transactional, while avoiding being pushed into choosing sides in the US-China rivalry.”
He said as a small and open economy, Malaysia is particularly exposed when major powers act unilaterally or unpredictably.
“There is the risk of sudden trade and tariff shocks affecting exports, supply-chain disruptions involving shipping and energy routes, volatile capital flows and exchange rates, weaker investor confidence and delayed foreign direct investment.”
Mohd Yazid also said spillover exposure from sanctions or secondary sanctions could complicate banking and commerce.
He said pressure from major powers may force difficult decisions in areas such as security, technology standards and market access.
“Despite being an oil and gas producer, Malaysia is not insulated from heightened global tension in energy-producing regions.
“Geopolitical instability could still lead to higher fuel and shipping costs, inflationary pressures and increased strain on government subsidies.
“Price spikes may boost revenue but they also increase volatility and domestic cost-of-living pressures. Regional stability and the security of key sea lanes could also be affected.”
Mohd Yazid said maintaining strategic autonomy is also critical.
“Strategic autonomy allows Malaysia to protect trade and investment links with multiple partners, reduce exposure to sudden demands or sanctions and preserve room to act through Asean and international law.
“It also ensures that national security and technology decisions remain aligned with the country’s own interests. That being said, it is still possible that Trump’s actions could pressure Malaysia to choose a side.”
He added that intensifying competition among major powers could narrow Malaysia’s room to manoeuvre, limiting the ability to make independent decisions.
Putra Business School economist Prof Ahmed Razman Abdul Latiff said rising geopolitical tensions present a mixed outlook for Malaysia’s economy in 2026, particularly through their impact on global oil prices.
“US control of Venezuelan oil is likely to have minimal impact since Venezuela’s current production remains relatively low compared with other major producers.
“However, any subsequent action involving Iran could push global oil prices higher.”
Ahmed Razman warned that while higher oil prices could boost Malaysia’s oil and gas revenue, government spending, particularly on fuel subsidies such as RON95, could also increase.
“Volatility in crude oil prices would likely feed into domestic conditions, including cost-of-living pressures and currency stability, contributing to a more uncertain economic environment.”
He added that this partly explains why economic growth projections for 2026 are slightly lower than the previous year.
Ahmed Razman highlighted the importance of government initiatives such as the 13th Malaysia Plan (13MP) and the Johor–Singapore Special Economic Zone (JS-SEZ) in cushioning both external and internal shocks.
“The implementation of the 13MP and the JS-SEZ would allow Malaysia to remain flexible and nimble in introducing interventions if necessary, ensuring that the economy can withstand disruptions.”
Global geopolitical tensions have intensified over the past month, following renewed assertive actions by the US, including the arrest of Venezuela’s former president Nicolas Maduro, ongoing pressure involving Iran and controversial claims regarding Greenland.
