MALAYSIA’S fuel subsidy bill is expected to approach RM40 billion this year as the Government absorbs the impact of volatile global oil prices triggered by the escalating conflict in West Asia, the Finance Ministry told the Dewan Rakyat.
Responding to Mohd Syahir Che Sulaiman [Bachok] during the oral question session in the Dewan Rakyat on Wednesday, Deputy Finance Minister Liew Chin Tong said fuel subsidies for RON95 petrol and diesel had increased significantly following disruptions in the global energy market.
The government spent almost RM800 million a month on fuel subsidies in January and February 2026 before the figure surged to around RM5 billion monthly in March and April as crude oil prices climbed amid geopolitical uncertainty.
Subsidy expenditure moderated to approximately RM4 billion per month in May and June as oil prices eased, with the Government projecting that total petroleum product subsidies could reach nearly RM40 billion for the full year, subject to further developments in the West Asia crisis.
“Prices of oil have continued to moderate in July and if current market conditions remain, the Government is expected to bear petroleum product subsidies amounting to almost RM40 billion for 2026, subject to developments in the crisis in West Asia,” Liew said.
However, the Government stressed that higher oil prices had also generated additional petroleum-related revenue, helping to offset part of the increase in subsidy costs.
The Deputy Minister said every US$1 per barrel increase in global crude oil prices was estimated to contribute around RM300 million in additional petroleum-related revenue for the Federal Government, excluding dividends from Petronas.
“This increase in revenue can help cover part of the additional pressure from higher fuel subsidy expenditure,” he said, adding that revenue collection performance was being monitored regularly to ensure the Government’s ability to meet operating expenditure requirements.
Liew added that the Government was closely monitoring the economic impact of the West Asia conflict through weekly engagement sessions conducted by the Crisis Management Task Force (PPPK) under the National Economic Action Council (MTEN).
The mechanism was aimed at ensuring energy security, maintaining the availability of essential goods, preventing sudden increases in the cost of living and strengthening Malaysia’s long-term economic resilience.
“The implementation of immediate, clear, comprehensive and structured intervention measures has helped maintain Federal Government expenditure levels without significantly affecting the country’s fiscal position,” he said.
Any revision to Malaysia’s 2026 fiscal projections will only be announced during Budget 2027 after taking into account updated economic indicators, as well as revenue and expenditure performance for the first half of the year.
Despite the pressures arising from the global oil market, the Government said it remained confident that its medium-term fiscal consolidation path would continue through targeted subsidies, expenditure reprioritisation, improved spending efficiency, stronger revenue collection and enhanced tax compliance.
“The Government remains committed to ensuring national fiscal sustainability is strengthened without compromising the welfare and wellbeing of the people,” Liew said.
In responding to a supplementary question from Mohd Sany Hamzan [Hulu Langat], the government highlighted the role of the BUDI subsidy mechanism as a buffer against external shocks.
The Government said many economists, including experts from the World Bank, had previously recommended the removal of petrol subsidies and allowing fuel prices to float according to market rates, with direct cash assistance provided instead.
However, it took more than two years to conduct a comprehensive review before implementing the BUDI system in September 2025.
“BUDI prioritises the needs of the people. At the same time, the BUDI system also prevents smuggling activities and ensures that subsidies are only enjoyed by eligible Malaysians rather than foreigners,” Liew said.
It added that without BUDI as a “shock absorber” mechanism, many Malaysians would have faced greater financial pressure during March and April when the West Asia conflict caused oil prices to surge and raised concerns over supply stability.
“Guided by the spirit of Malaysia MADANI, the Government developed this shock absorber mechanism which was not only carefully planned but has also proven effective when tested during the crisis we are currently facing,” Liew added. - July 15, 2026
