Kuala lumpur: Global markets turned cautious on Sunday following the latest United States military action against Iran, with economists warning that heightened geopolitical risks due to the situation in the Middle East could reinforce risk-off sentiment and affect oil prices, the ringgit, and trade flows, said analysts.
According to BERNAMA News Agency, Bank Muamalat Malaysia Bhd chief economist Dr. Mohd Afzanizam Abdul Rashid stated that the renewed conflict injects fresh uncertainty into global trade, particularly through its direct impact on energy markets. At the time of writing, WTI crude was up 2.78 percent at US$67.02 per barrel, while Brent crude rose 2.87 percent to US$72.87 per barrel.
Dr. Mohd Afzanizam pointed out that the key concern revolves around the duration of the military campaign and potential retaliation, especially against US military bases in the Gulf region. If the conflict escalates, crude prices could test US$80 per barrel or even approach US$100 due to the high degree of uncertainty. He further assessed the effects on Malaysia, highlighting immediate worries about fuel prices and inflationary pressures. While Malaysia's subsidy scheme can cushion the short-term impact, a prolonged crisis could strain the government's fiscal position as subsidies would need to be extended.
On the currency front, risk-off conditions typically strengthen the US dollar as investors seek safe-haven assets. However, given current market dynamics, precious metals such as gold may also benefit. The ringgit ended the week firmer against the US dollar, closing at 3.8910 on Friday compared with 3.8995 last Friday, while trading mostly higher against a basket of major currencies this week.
Dr. Mohd Afzanizam noted that global growth downside risks have heightened, with disruptions to shipping routes or rerouting by airlines to avoid conflict zones potentially raising logistics costs and affecting trade and economic activity. He mentioned that economic forecasts may require frequent revisions as the situation remains fluid. If Iran endures the assault and receives support from its allies, the conflict's scale could increase and prolong itself. For now, it is a wait-and-see scenario.
Centre for Market Education chief executive officer Dr. Carmelo Ferlito echoed these sentiments, noting that oil prices could rise further amid concerns over potential supply disruptions in the Middle East, particularly around the strategic Strait of Hormuz. Even in the absence of an actual supply shock, heightened risk perception can drive prices upward through precautionary buying and speculative activity.
For Malaysia, as a net oil and gas exporter, there could be short-term fiscal gains and support for the ringgit from higher export revenues if crude prices rise. However, sustained volatility may increase production costs and uncertainty, offsetting initial gains. Stability and predictability in prices are more critical than simply higher prices.
Dr. Ferlito highlighted that geopolitical tensions generally push investors toward safe-haven assets, strengthening the US dollar, which could pressure the ringgit, particularly if capital flows reverse from emerging markets. He warned that any escalation disrupting shipping routes, raising insurance and freight costs, or triggering retaliatory sanctions could indirectly affect Malaysia's trade flows. For an open economy like Malaysia, prolonged uncertainty and geopolitical fragmentation are more damaging than clear and stable engagement rules.