What happens to Malaysians when US goes to war in the Middle East?
By Hakim Joe
Let us be specific here. If the Americans get themselves involved in an armed confrontation with Iran, everybody in this world will be affected either directly or indirectly.
Foremost of all is the global oil supply. Iran possesses the third largest oil reserves in the world (151.2 billion barrels proven reserves as of 2011) after Saudi Arabia (264 billion barrels) and Canada (175 billion barrels). Iran is also the fourth largest oil exporter in the world today producing approximately 4.1 billion barrels a year.
When an oil exporting country goes to war, the oil stays in the country as it will be extremely difficult for an oil tanker to load up and leave its loading port without being noted by the opposing military forces. When Iran is in a conflict with either NATO or the U.S., the world loses 7% of the global oil exports and the simple economics of supply and demand will ensure that oil prices takes an upturn. Even if Saudi Arabia, Iraq and Kuwait agrees to increase production to deflate this artificial increase in oil prices (putting more supply onto the market), the spot market will still go up owing to the uncertainties of war and subsequently the futures market will follow suit. This could mean a less pronounced increase in global oil prices but an increase nonetheless.
For Malaysia (the country) and also as an oil exporter, the revenues will increase. This means more money for the government. For Malaysians (the people), an increase in oil prices equates an increase in oil prices as petroleum is only partially subsidized here at a fixed rate. Any other by-products of petroleum will increase in prices as well including plastic, hydrocarbon solvents, asphalt, lubricants, kerosene, wax, paraffin, etc. and these items are not subsidized. Transportation costs will go up, and together with it almost everything else as virtually all products have to be transported from the production sites to the distribution sites and subsequently to the retail sites. Rice, sugar, salt, corn, clothes, milk, flour, ice cream, Maggi mee, meat, vegetables, detergent, toothbrushes, batteries, shoes….I think you get the picture.
About the only one thing that possibly won’t go up is your paycheck.
This phenomenon will not be distinct only to Malaysians but everybody everywhere on this planet with differing effects. Oil producing countries will be less affected but oil importers will feel the entire ferocity of the escalation in oil prices. This is not something new as global oil prices were driven from USD17/barrel to USD36/barrel when Iraq invaded Kuwait on August 1990 and continued to reach a peak of USD45/barrel in October before the price started to decline (after U.S. chased the Iraqi out from Kuwait). Same events happened during Operation Desert Storm and Operation Iraqi Freedom but the increase was less pronounced as both military operations ended rather quickly and were not prolonged affairs.
Oil prices reached USD145/barrel on July 3rd and peaked at USD147.27/barrel on July 11th, 2008 following concerns over the Iranian missile tests. It is about USD85/barrel these days. If global oil prices are able to reach over USD147/barrel because of the Iranian military testing their long-range cruise missiles, what will happen when Iran goes to war?
An armed conflict with Iran will not be a quick stint for the U.S. armed forces and this is a surefire recipe for a sharp increase in global oil prices. Good for Malaysia’s economy, bad for Malaysians.
