3 Mideast conflict scenarios Malaysia must prepare for

A research firm has advised Malaysia to prepare for three scenarios that could emerge from Iran’s closure of the Strait of Hormuz and the Houthis’ seizure of territories commanding the Bab-el-Mandeb strait to mitigate trade risks.

Penaga Research and Consultancy said the first possible scenario is the reopening of both straits or an easing of blockades.

It said Malaysia should respond by treating these events as the base case to insure against, rather than merely rare events.

The firm said Putrajaya needs to stress-test its fiscal planning for when energy prices return to normal and energy trade flows shift to different routes with the reopening of the two straits.

It pointed out that Malaysia benefitted from trade gains because of the conflict, with liquefied natural gas exports surging 52% and petroleum products up by 22% in August.

“These were driven by elevated wartime prices, not sudden capacity expansion,” it said in a research note.

Therefore, Penaga said, there is a need for the government to distinguish between these fragile economic gains and actual long-term gains, such as plants built in Malaysia, in its fiscal planning.

The research firm said the second scenario to brace for is the continuation of blockades at both waterways, adding that this is widely regarded as the current baseline now.

Given the influx of cargo Malaysian ports like Port Klang are already seeing, it said, Putrajaya should expedite the new port on Pulau Carey and Northport’s expansion to boost port capacity.

It pointed out that Port Klang’s container throughput rose 5.4% to 6.38 million twenty-foot equivalent units (TEUs) from January to May this year alone, compared with 6.05 million TEUs in the same period last year.

However, the increased trade flow, partly thanks to diverted cargo, meant that yard utilisation was nearing maximum capacity, reportedly at 85% to 88%.

Penaga also cited “documentary friction”, where separate import permits and duplicated checks between Malaysia and Singapore still constrain the Johor corridor.

“Close the paperwork gap by adopting the United Nations’ model law on electronic transferable records (currently only Singapore has fully implemented it), giving Asean Trade Connect’s digital shipping documents equal legal weight on both sides of the Causeway.

“Additionally, make border screening rules-based and transparent with a published list of triggers and a defined release and seizure timeline, so shippers can route around a specific restriction rather than pricing in generalised uncertainty,” it said.

Escalations beyond Middle East

The third scenario to prepare for involves escalations beyond the two Middle East straits. Penaga cited Iranian-linked proxy action further east and friction between superpowers in the South China Sea.

The firm said the Houthis’ shift from attacking ships to controlling territory set a new precedent that Southeast Asian planners must take seriously.

“Malaysia should build institutional crisis-management capacity independent of any single leader’s personal credibility,” it said, acknowledging Prime Minister Anwar Ibrahim’s effective diplomacy.

“(It should) develop standing protocols for risks involving flagged vessels and diplomatic engagement before they’re needed

“Malaysia’s story, on balance, is one of benefitting from geography and a fortunately timed semiconductor cycle more than from deliberate design,” it said.

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