PETALING JAYA: Consumers may be shielded from higher fuel prices at the pump, but elevated crude oil prices resulting from the latest Middle East conflict could still filter through the economy, pushing up prices as businesses manage rising costs.

Sunway University economics professor Yeah Kim Leng said the surge in oil prices should no longer be viewed as a “temporary” shock, but a “persistent” one.

He said the resulting cost pressures would require the burden to be shared between the government, businesses and consumers, as no single group can absorb the shock indefinitely.

“This is an economy-wide shock. In order to address this, the burden has to be shared in a tripartite manner between consumers, producers and the government, as no individual party can shoulder the burden without collapsing,” he told StarBiz.

With the subsidy mechanism already in place, Yeah said the government should further fine-tune it so higher-income households bear more of the cost, while savings from lower subsidies could be channelled to the economy and vulnerable groups.

“If the current conflict and high oil price continues, we believe that this group would need to shoulder some of the burden of reducing the subsidy burden on the government,” he said.

“These are typically upper-middle and high-income families that are ready to absorb the price increase at the pump.”

On how to determine who falls into this group, Yeah said no system would satisfy everyone.

The need for such measures comes as higher oil prices put pressure on businesses, which could eventually pass on some of the increased costs to consumers.

The producer price index, which measures prices of goods at the factory gate, rose for five consecutive months – from a 3.4% contraction in February to a 9.7% increase in July. The Statistics Department said all sectors recorded increases in July for the fourth straight month.

Malaysia’s consumer price index (CPI) rose from a low of 1.4% in February to 2% in May before easing to 1.8% in July.

Yeah expects higher producer costs to gradually feed into consumer prices, with CPI likely to inch up by 0.1 to 0.2 percentage points.

“These secondary spillover effects will have a more gradual but rising inflationary impact. We do expect overall inflation to inch up,” he said.

“Had there been no consumer subsidies, the inflation would have skyrocketed. But because of the subsidies, we only expect the secondary spillover effects to gradually cascade through the economy.”

The Federation of Malaysian Manufacturing (FMM) said sustained Brent crude prices above US$100 per barrel would continue to pressure manufacturers, particularly through higher energy and transport costs.

It said the impact would not be limited to fuel, with higher oil prices likely to raise costs across logistics, transportation and raw materials, “adding pressure to already tight operating margins.”

FMM’s business conditions survey for the first half of 2026 (1H26) showed the production cost index rising to 163 from 146, with 69% of respondents reporting higher production costs.

Among manufacturers affected by geopolitical developments, 72% reported higher freight, logistics and shipping costs, while 44% cited higher energy and fuel costs.

“While 45% expect revenue to increase in 2H26, 38% anticipate a decline in profits, suggesting that higher operating costs may continue to constrain margins even as sales improve,” FMM said.

Against this backdrop, FMM said targeted measures are needed to help manufacturers manage higher costs without passing the full burden downstream.

“From FMM’s perspective, the priority is to help manufacturers manage these pressures without simply passing the full increases in costs downstream,” it said.

These include duty and tax exemptions on raw materials sourced from alternative origins, cited by 56% of respondents; industrial fuel rebates for manufacturers excluded from the subsidised diesel scheme (40%); and tariff reductions or accelerated trade agreements (32%).

Manufacturers are responding by increasing stockpiles of critical raw materials, sourcing from alternative suppliers and countries, and restructuring logistics arrangements.

The survey found that 29% of respondents had increased stockholding of critical materials, 25% had switched suppliers or sourcing countries, and 21% had restructured logistics or supply chains.

“At the same time, 31% said it was still too early to determine the lasting impact of geopolitical disruptions,” FMM added.

“The concern is that if Brent stays above US$100, rather than being a short-term spike, these pressures will continue to work their way through the supply chain.”

Beyond government support, Yeah said businesses would need to focus on cost control through greater efficiency and productivity, while diversifying suppliers and sourcing alternatives.

He added that the government cannot be expected to subsidise businesses indefinitely in the face of a prolonged supply shock, and producers will eventually have to pass on some of the higher costs.

“For those able to pass on costs, it should be done gradually,” he said, adding that a number of products and services have already seen price increases.

Yeah said producers should focus on cost control while balancing margin pressures with the need to sustain operations and pass through some of the increases.

At last look, spot Brent crude was trading at US$107.74 a barrel, up 77% year-to-date.

The benchmark has averaged US$94.28 over the past six months, ranging from a low of US$71.57 on July 1 to a high of US$118.35 on March 31.

OCBC senior Asean economist Lavanya Venkateswaran said Malaysia’s fuel subsidy bill could swell to nearly RM37bil this year if Brent averages US$100 per barrel – more than double the Budget 2026 estimate of RM15bil.

She said this would be equivalent to about 1.8% of gross domestic product.

According to Petroliam Nasional Bhd (PETRONAS), Brent averaged US$92.31 a barrel in the 1H26, up 28% from US$71.87 in the same period a year earlier.

Looking ahead, Venkateswaran said the government’s oil price assumptions for Budget 2027 will be key in determining next year’s subsidy bill, while higher subsidy costs could also put PETRONAS dividends in focus.

“There could also be cutbacks in development spending, as managing cost-of-living pressures remains a priority for the government,” she said.