Hormuz crisis could shake Malaysia's supply chains, inflation stability, experts warn

New Straits Times

5 days ago

KUALA LUMPUR: The potential closure of the Strait of Hormuz could disrupt Malaysia's supply chains, fuel inflation and strain small businesses, economists have warned.
Universiti Teknologi Mara Malaysian Academy of SME and Entrepreneurship Development coordinator Dr Mohamad Idham Md Razak said a shutdown of the vital shipping lane could cause far-reaching economic shockwaves.
"Some 21 million barrels of oil pass through the Strait of Hormuz daily. If that flow is disrupted, vessels will be forced to divert around the Cape of Good Hope, adding 10 to 15 days in shipping time.
"These delays will result in higher freight costs and fuel prices, which would directly impact Malaysia's just-in-time production processes, especially in manufacturing," he said.
He added that rising import costs would squeeze margins for SMEs and raise inflationary pressures on consumers.
While Malaysia may benefit from higher oil prices as a net energy exporter, Idham cautioned that the gains could be offset by rising import costs and the spill-over effects of global trade and supply chain dysfunction.
"Malaysia imports roughly 30 per cent of its refined fuel, so petrol and diesel prices may rise by as much as 20 sen per litre. This could push overall core inflation up by one to two percentage points, disproportionately affecting lower-income households," he said.
He said downstream sectors, particularly agriculture, logistics, and manufacturing, would face cascading cost increases, driven by higher fuel and transport expenses, he added.
Port Klang, a key regional hub, could also see a decline in throughput as global shipping routes are disrupted and regional trade logistics become more volatile.
"Malaysia's export base is diverse, but the manufacturing sector makes up about 31 per cent of GDP.
"With limited fiscal space, such as the government debt standing at around 64 per cent of GDP, there is little room to provide broad subsidies or wage relief," he said.
He warned that SMEs, which generally have less pricing power and thinner margins, are likely to bear the brunt of volatile input costs.
"SMEs don't have the capacity to absorb price shocks the way large corporations do. Many are already operating in a tight environment.
"A prolonged crisis could see closures or workforce reductions, further straining the economy."
Idham added that the economic impact would extend beyond Malaysia, affecting many Asian economies heavily dependent on Middle Eastern energy imports and export-driven manufacturing.
"Countries like China, Japan, and South Korea import large volumes of crude oil and liquefied natural gas from the Middle East.
"A disruption would drive up their energy costs, widen trade deficits, and trigger inflationary pressure across key sectors," he said.
Rising shipping costs and longer delivery times would also weaken Asia's export competitiveness, leading to higher prices for finished goods such as electronics, vehicles and machinery.
Meanwhile, Universiti Utara Malaysia School of International Studies senior lecturer Asrar Omar said Asean countries would face both immediate and long-term consequences if the strait was closed.
"The strait accounts for about 20 per cent of global oil shipments, much of which is destined for Asian markets including Asean.
"A disruption would cause an immediate spike in oil prices, particularly in liquefied petroleum gas (LPG)," he said.
Vietnam and Malaysia, he added, would be among the hardest hit due to their reliance on energy for manufacturing and semiconductor industries.
"Higher fuel costs will drive up production costs and undermine competitiveness.
"Asean nations would have to seek alternative and more expensive energy sources, compounding inflationary pressure," he said.
He added that the tourism industry in Thailand could also be affected due to higher transport costs, while delays caused by shipping reroutes may lead to congestion in the Straits of Malacca.
"Asean economies rely heavily on exports, which in turn depend on smooth imports. Rising freight rates and delays will increase trade costs, affecting everything from industrial production to consumer goods," Asrar said.
He said that prolonged price shocks could lead to economic slowdowns across the region.
"In import-dependent Asean countries, sustained inflation will reduce consumer spending and deter business investment.
"If the crisis persists, the long-term effects on consumer prices could be severe."
With many Asean nations still lagging in energy transition efforts, Asrar said diversifying supply chains would be difficult.
"Asean may have to invest more aggressively in renewable energy and explore alternative trade routes.
"There also needs to be a shift from a consumption-based to a production-based mindset to ensure long-term energy and economic security," he said.