Global Crude Oil Is Increasingly Peaking, What Is The Government's Action Against Subsidy Rationalization?


The sight of Brent crude oil prices in the target towards $100 per barrel is getting clearer and the government may choose to implement the planned petrol and diesel subsidy rationalization initiative in stages.

The Iran-Israel conflict that broke out last weekend continues to cause uncertainty in the crude oil price market.

Global attention is now focused on Israel's reaction to the conflict and whether they want to retaliate in the near future.

According to Tunku Abdul Rahman University economics professor Wong Chin Yoong said it is unlikely to rise again to the high of $139 per barrel as it happened in 2022 because of the Russia-Ukraine war and low global crude oil inventories.

He also said that the government could consider implementing a gradual increase in petrol prices for RON 95 through a phased approach from RM2.05 per liter now to RM2.10 for example and increasing it to RM2.20 for three months.

In principle, the government can modify the rates and the way it rationalizes subsidies to the people. This adjustment can help a little in reducing the impact of the economic burden and help them adjust.

In addition, the government needs to be transparent in the implementation schedule so that businesses and households can plan ahead.

The launch of the RON95 fuel subsidy program is targeted to start from the second half of 2024. It is reported that more than RM50 billion is spent by the government on fuel and gas subsidies and the free float of fuel prices may save the government RM29 billion.

Meanwhile, OCBC Asean senior economist Lavanya Venkateswaran said high oil prices should encourage the authorities to continue rationalizing fuel subsidies to limit the increase in subsidy bills and the risk of losing the annual fiscal deficit of 4.3% of GDP.

According to him, the subsidy reduction is unlikely to happen suddenly and the authorities need to focus on managing inflation expectations.