PRESS RELEASE
Date: 26th MARCH 2026 (THURSDAY)
MIDDLE EAST CONFLICT – IMPACT ON MALAYSIA’S ENERGY SECURITY
The current Middle East conflict has disrupted energy supply security across the globe. Association of Water and Energy Research Malaysia (AWER) and Centre for Water and Energy Sustainability (CWES) would like to express concern over the immediate impacts to Malaysia energy security for the coming months.
Some key issues about Malaysia’s energy sector that will affect energy security are as below:
i. Close to 40% of our final energy consumption goes to transportation sector. We have raised this issue for more than a decade with proposed solutions. Unfortunately, the changes are too slow.
ii. Malaysia is net importer of coal for electricity generation.
iii. 2 tier natural gas pricing includes international market pricing. Rise in second tier pricing will impact fuel cost for electricity generation.
iv. Imbalanced Cost Pass Through (ICPT) which is a 6 month generation cost fluctuation management mechanism has been replaced with monthly Automatic Fuel Adjustment (AFA). We have raised our concern on AFA’s ability to manage price spike compared to ICPT during consultation process. There were no concrete answers.
v. Energy efficiency implementation across the board has been lagging for decades. This fundamental flaw has been core policy decay in energy transition.
vi. Failure to implement Energy Price Stabilisation Fund (EPSF) that was proposed for more than a decade ago by us. If EPSF was established, the government can utilise this fund to minimise price spike impacts as the EPSF which is based on funds generated during low fuel cost across the board can assist cost dampening for transportation, electricity and industrial sector.
THE GOVERNMENT NEEDS TO CLOSELY MONITOR 3 ISSUES:
1. Infrastructure destruction will take time to repairWe need to understand that the bombings have destroyed facilities that process and store oil and gas products. Even if the Strait of Hormuz is reopened and the war ended, it will still take many months until these facilities are back online to stabilise global supply.
2. European winter crunchAfter the sanctions on Russia, Europe has fallen into tight energy supply during winter. While some efforts have been put in place, the Middle East situation basically derail Europe’s long term planning. The current situation will be aggravated during the last quarter of 2026 and first quarter of 2027 and this will add more pressure to the energy prices.
3. Coal supply demand surgeMany countries (including Malaysia) that still have considerably high coal energy mix will try to increase the electricity generation using coal to balance the natural gas volatility issue. This will eventually lead to increase in coal price. This trend has been observed beginning 2011 that saw major shift to coal to balance high natural gas prices.
SHORT TERM MEASURES THAT MALAYSIA MUST EVALUATE TO IMPLEMENT
Due to delay or failure to implement many strategies that could have reduced the negative impacts from Middle East conflict, Malaysia is left with very few options.
1. Any cost pass through must be done transparentlyGovernment must be transparent in cost pass through for natural gas (industry), electricity (AFA – generation cost) and transportation (petrol and diesel). This is to ensure trust and prevention of cross subsidy (a category of users are subsidising another). For example, high cost diversion into business sector will increase cost of goods and services that will impact living cost.
2. Increase hydropower generation if there is sufficient rainfallConservatively this was successfully done some time back. This can only be done when there is sufficient rainfall like what we faced during La-Nina. While some projection may not be favourable as El-Nino is predicted, we have to wait until mid of the year to have a clear El-Nino prediction probability.
3. Consider reverting to ICPT temporarily We also urge the government to temporarily suspend AFA and implement ICPT if the situation in Middle East worsen. Alternatively, the government can opt for a 3 month AFA/ICPT implementation to keep electricity pricing stable as a temporary move.
Piarapakaran S.
President
Association of Water and Energy Research Malaysia (AWER) &
Chief Executive Officer
Centre for Water and Energy Sustainability (CWES)
