Written by Dr Stewart Nixon, Director of Research of the Institute for Democracy and Economic Affairs (IDEAS).

As a former policymaker tasked with analysing and advising on responses to globally significant shocks, I appreciate the unenviable challenge the disruptions in the Strait of Hormuz present. This was not a problem of Putrajaya’s making, yet impossible answers to unanticipated questions are urgently demanded, not only surrounding the shock itself but also how budgets for public services can be slashed to sustain politically sensitive petrol subsidies.

The most consequential oil supply disruption in half a century provides a further illustration of major weaknesses in Malaysia’s shock preparedness and the fragility of its resilience approach. Despite the procession of tariff, pandemic and military shocks since 2018, policymakers do not appear to have developed a sufficiently granular understanding of economic vulnerabilities or the broad contours of shock transmission. They are not sufficiently equipped with the tools and networks to monitor real-time impacts and rely upon mostly untargeted and ill-timed policy measures that preserve incentives poorly aligned with building resilience.

Preparedness is the lynchpin of shock-response policymaking and, without it, advice to the government is swiftly overtaken by events. The 21st-century Malaysian and global economies are incredibly complex and interconnected, comprising a dizzying array of real and financial activities, actors, markets and regulations. A meaningful understanding of Malaysia’s economy and how plausible shocks might transmit through it cannot be cobbled together during an unfolding event but must be understood beforehand, providing the foundational knowledge, informant relationships and data to monitor and interpret shocks as they happen.

Policymaking and discourse surrounding both US President Donald Trump’s “reciprocal” tariffs and the US-Israel war with Iran suggest Malaysia’s preparedness is weak and overarching risk mitigation and resilience strategies do not exist. National and regional geoeconomics task forces were only hurriedly established last year and have thus far restated the high-level problems and estimated impacts, which, while delivering an essential call to arms, is of limited utility to policy targeting. The 13th Malaysia Plan makes about 20 references to resilience but these are specific to natural disasters, food security and civil society development.

The absence of a clear strategy makes it hard to focus and uplift policymaker efforts, both before and during a crisis. Risk mitigation and resilience are multi­faceted, with correspondingly diverse policy options. Policymakers need to know if they should be reducing risk by addressing the direct threat, Malaysia’s exposure and/or vulnerability, and/or whether policies should reinforce resilience through some mix of absorption, adaptation and transformation. To use the current crisis as a tangible example, should the priority be to negotiate safe passage through the Strait of Hormuz (threat), reduce oil demand (vulnerability), maintain business as usual activities and livelihoods through subsidies and regulatory intervention (absorb), prioritise oil for certain activities (adapt), and/or accelerate the green energy transition (transform)?

Prioritisation is made additionally essential but difficult by Malaysia’s cripplingly thin fiscal margins. As a number of us have repeatedly warned, the terminal decline in government revenue leaves Malaysians more vulnerable to shocks because Putrajaya cannot afford countervailing fiscal policies. Fuel subsidies are sheltering most motorists from the direct impacts but at an expense so staggering that the whole civil service is being mobilised to cut costs.

It may sound counterintuitive but deepening preparedness should be a priority response to the prevailing shock. Never let a good crisis go to waste, as Sir Winston Churchill famously said, with cascading disruptions a wake-up call to invest in risk and resilience strategies and institutional depth.

Three critical needs stand out beyond introducing an overarching strategy. First, a substantially deeper and more granular understanding of risks is fundamental. It may be a daunting task but a more detailed mapping of supply chain exposure and vulnerability to plausible disruptions is essential to prepare for threats and target policy mitigations.

This cannot be gleaned from aggregate trade data or input-output tables with five-year lags but must come from policymakers developing deep business intelligence of supply chains and competition dynamics. Second, studying and simulating shock transmission and institutionalising response readiness. Discourse remains worryingly blinkered around specific salient channels such as trade and prices, neglecting wider transmission through investment and financial markets and other business responses to higher costs including reduced product offerings and cutting jobs.

Lessons from past shocks are also ignored, including long impact lags and that exposure does not automatically translate into harm. Third, broadening and sharpening the policy toolkit in response to shocks. Untargeted and distortionary subsidies do too much heavy lifting in Malaysia, perpetuating vulnerabilities instead of incentivising resilient behaviours. A mix of targeted subsidies, proportional emergency reserves and both domestic and international shock-response coordination mechanisms is needed.

While preparedness failings mean any response to the prevailing oil crisis engages second-best policies, there are still opportunities for immediate improvement. An absorption-focused approach centred on maintaining untargeted fuel subsidies is unsustainable and suppresses the price signal needed to encourage adaptation. Businesses and households need to start reducing fuel use and this would be better done gradually and voluntarily rather than through later emergency rationing.

At a minimum this requires replacing the fixed price with a floating subsidy tied to global oil prices and linked to variable dividends agreed with Petroliam Nasional Bhd. Prioritising policies that accelerate greener choices would complement efforts to reduce oil demand, such as investment and incentives for clean energy installation, diesel generator replacements, green building standards, public transport use and electric vehicle purchase. And Malaysia must work with its many international friends (both government and business) to build emergency fuel supply chain cooperation mechanisms that prevent a nation-first race to the bottom, which would see rich countries secure scarce supplies.

Resilience will not come from stubbornly preserving the status quo but from policies and leadership that set Malaysians on a more sustainable path. As the scale and frequency of global shocks increase, policymakers must be better prepared.

This article was featured in The Edge Malaysia, 12 June 2026

The views expressed in this article are solely those of the authors and do not necessarily represent the views or positions of IDEAS Malaysia. All opinions are the author’s own.