Imagine stopping at a petrol station to use BUDI95 and you only have to pay RM1.99 per litre, but the person at the pump next to you suddenly shouts that he has to pay RM6.00 per litre!
This scenario may sound extreme, but it could happen if the price of Brent crude oil jumps to $200 per barrel.
Such a surge would put a huge strain on the BUDI95 targeted subsidy system that the government has been implementing since September 2025 as they will have to bear a huge price gap for each litre.
If that happens, the impact on the Malaysian economy and the petrol subsidy system will be huge.
Subsidy Gap Soars, Government Under Pressure
Under the current price structure, the government bears a subsidy of around 68 sen per litre to ensure that RON95 remains at RM1.99.
If Brent prices rise to $200 per barrel, the price of unsubsidized petrol in the market is expected to reach around RM5.50 to RM6.00 per litre.
This means that the government will have to bear a subsidy of around RM3.50 to RM4.00 per litre of petrol.
For a car with a 40-litre tank, the total subsidy that the government will have to bear could reach around RM140 to RM160 for a full fill-up.
This fiscal burden will increase very quickly if petrol consumption remains high.
National Budget Realignment
A large-scale subsidy surge could put serious pressure on the country's fiscal position. The government may need to make some adjustments to the BUDI95 system to control the cost of the subsidy.
Among the potential measures that could occur is a reduction in the monthly petrol quota for eligible consumers.
For example, the current quota of around 300 litres per month could be reduced to a lower level to limit the subsidy burden.
In addition, the government may also need to review the RM1.99 petrol ceiling price to prevent the cost of the subsidy from becoming too high.
Inflation Impact on Consumers and Increased Risk of Smuggling
Although BUDI95 consumers are still enjoying subsidized petrol, the impact of the oil price spike will still be felt in the economy.
The logistics, transportation and industrial sectors usually use fuel at market prices such as commercial diesel or RON97.
When fuel costs increase, delivery and operating costs also increase.
Ultimately, these cost increases will be passed on to consumers in the form of higher prices for goods, especially food and basic goods.
This phenomenon is known as supply-side inflation.
This situation creates a very high incentive for smuggling or reselling subsidized petrol.
The government may need to tighten controls at petrol stations, including the use of MyKad and stricter border enforcement.
Implications for Petronas
On the one hand, the country's oil and gas revenues have the potential to increase, thus increasing government income through energy company dividends.
However, at the same time, a large part of these revenues could be used to cover the increasing cost of petrol subsidies.
In this environment, the logistics and consumer sectors are expected to be most affected by increased operating costs.
On the other hand, the energy sector has the potential to see more active and volatile price movements in the market.
