Rising oil prices – fuel subsidy costs Malaysia more than it profits, each US$1 increase is a RM410m deficit

Dateline 2022-03-09, Paul Tan:

That the Russian invasion of Ukraine is having a profound impact is undeniable, and it’s not just from aspects of the immediate strife. Oil prices have also spiked as a result of the crisis, having gone past the US$120 per barrel mark, and it is this increase that raises the question – is there a possibility of a readjustment of the fuel subsidy in Malaysia, given the rising pressure the increase is putting on government finances?

As The Star reports, rising oil prices are generally positive for a net oil and gas exporting country like Malaysia. According to a CGS-CIMB Research report, it is estimated that for every US$1 (RM4.18) per barrel average increase in oil prices, the government stands to add some RM370 million in revenue.

However, given that the country has a fuel subsidy mechanism in place, that same US$1 per barrel increase will set the government back by around RM780 million in fuel subsidies, based on the price of RON 95 and diesel remaining unchanged at their ceiling price of RM2.05 per litre and RM2.15 per litre respectively. To give an idea of how much subsidy is in place, RON 97 is currently priced at RM3.45 per litre this week.

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