Recent calls by P. Ramasamy to significantly expand fuel subsidies through greater utilisation of Petronas profits may appear intuitively appealing, a careful and disciplined assessment of the fiscal realities indicates that such an approach would be neither sustainable nor responsible.
The scale of the current subsidy expansion is already significant. Government fuel subsidies have increased sharply from approximately RM700 million per month to RM3.2 billion per month within a short span of time, equivalent to roughly RM38 billion on an annualised basis. This represents a substantial fiscal commitment that must be evaluated against broader national priorities, including healthcare, education, infrastructure, and long term economic resilience. Expanding this further on a blanket basis would place considerable strain on public finances.
It is also important to contextualise the contribution that higher oil prices make to Petronas revenues. At an oil price of around USD100 per barrel, Petronas may generate an estimated additional RM25 billion to RM35 billion annually. However, this increase is broadly commensurate with the additional subsidy burden arising from elevated global prices. In effect, the entirety of the windfall would be absorbed merely to sustain current subsidy levels, leaving no meaningful fiscal buffer, no capacity for reinvestment, and no provision for future volatility in energy markets. Such an approach would undermine the long term strength and strategic role of Petronas as a national asset.
More importantly, current global developments suggest that oil prices may rise significantly beyond USD100. With the ongoing conflict in Iran and disruptions to global supply routes, analysts and market participants have warned that oil prices could reach USD120 in the near term and potentially USD150 or higher in a severe escalation scenario. Under such conditions, Malaysia’s fiscal burden would increase sharply. At USD120, the government’s fuel subsidy bill could rise to approximately RM50 billion to RM70 billion annually, while Petronas’ additional profits may only increase to around RM40 billion to RM55 billion. This would already result in a widening fiscal gap. In a more extreme scenario of USD150 oil, subsidy costs could exceed RM80 billion annually, far outpacing any incremental gains in Petronas revenue. This clearly demonstrates that higher oil prices do not strengthen Malaysia’s fiscal position, but instead place it under increasing strain.
Malaysia’s structural position in the global energy market must also be clearly understood. As emphasised by Prime Minister Anwar Ibrahim, Malaysia remains a net importer of petroleum products, with imports exceeding exports, and nearly half of our oil supply passing through the Strait of Hormuz. Consequently, increases in global oil prices impose broad based costs on the economy, affecting businesses, supply chains, and households, often outweighing any upstream gains from higher crude prices.
In addition, blanket fuel subsidies are inherently inefficient and regressive in nature, as higher income households with greater fuel consumption derive a disproportionately larger share of the benefits. Expanding such subsidies would therefore dilute the effectiveness of public spending and divert national resources away from those who need them most. At the same time, excessive extraction of Petronas profits to fund recurrent expenditure risks compromising its capacity for capital investment, future production, and long term value creation.
It must also be emphasised that Petronas profits should not be treated as expendable short term revenue, but as strategic national wealth that ought to be preserved and invested for the future. Leading resource rich nations such as Norway have demonstrated a disciplined approach through the Norwegian Government Pension Fund Global, where oil revenues are largely saved and invested globally, with only a small, controlled portion utilised annually. This model has enabled long term wealth accumulation, fiscal stability, and resilience against commodity price volatility. Malaysia should move in a similar direction by ensuring that a meaningful share of Petronas windfall gains is channelled into long term savings and investment, rather than being fully consumed through short term subsidies.
A prudent and responsible policy approach must therefore prioritise targeted assistance, ensuring that support is directed to lower and middle income Malaysians who are most affected, while maintaining fiscal discipline and safeguarding the sustainability of national resources. Malaysia must balance immediate relief with long term stability, and this requires careful, disciplined policy decisions rather than short term populist measures that may create greater challenges in the future.