The US-Israel war with Iran has made abundantly clear how much the world relies on energy from the Gulf region.
Since the conflict began, oil prices have surged above $100 per barrel, driven by escalating airstrikes on critical shipping lanes and energy infrastructure, as well as the effective disruption of the Strait of Hormuz—a critical artery that carries roughly a fifth of global oil supply. Nowhere is the impact more acute than in Asia, which absorbs the vast majority of these flows. Last year, nearly 90% of oil and gas transiting the Strait was destined for the region, highlighting its deep dependence on Middle Eastern energy.
Southeast Asia, in particular, finds itself increasingly vulnerable. Even traditional producers such as Malaysia and Indonesia have, over the past decade, experienced declining production alongside rising import dependence. Compounding this challenge is the structural rigidity of refining systems across the region, many of which are configured for specific Middle Eastern crude grades. Substituting supply from alternative sources such as the United States is neither straightforward nor cost-efficient, thereby leaving refiners structurally exposed to prolonged supply disruptions.
That said, China is relatively better positioned to weather the immediate shock. Rising petrol prices will be felt less keenly as approximately one-third of new car sales are electric vehicles, reducing marginal oil demand growth. Moreover, China is far less reliant on oil for power generation compared to other Asian economies, with coal still forming the backbone of its electricity mix. Coupled with substantial strategic petroleum reserves, this provides a meaningful buffer against short-term volatility.
Across the rest of Asia, however, the strain is evident. Import-dependent economies such as Japan and South Korea are actively scrambling to secure alternative supplies amid rising costs, highlighting the fragility of existing energy supply chains. According to Rystad Energy, Japan faces the most direct risk of disruption, due to its high share of oil and gas trade through the shipping route and its reliance on imported oil and gas (77%), followed by South Korea (62%), Taiwan (60%), India (42%), and China (38%).
Amid this disruption, a clear investment theme is emerging—the acceleration of the energy transition. Elevated fossil fuel prices have significantly improved the relative economics of renewables, prompting both policymakers and corporates to accelerate capital deployment into clean energy. In Malaysia, Tenaga Nasional Berhad is actively expanding its renewable energy footprint, while Petronas is increasing investments across cleaner energy solutions, including hydrogen and carbon capture initiatives. Regionally, Adani Green Energy and globally NextEra Energy are well-positioned to benefit from sustained capital reallocation toward sustainable infrastructure. Share prices of these renewable energy companies have remained relatively resilient despite broader oil market volatility, reinforcing the strength of the clean energy investment theme.
In conclusion, beyond the near-term dislocation in energy markets, the crisis is reinforcing a structural shift in capital allocation. Sustained volatility in oil markets is likely to accelerate policy support, capital flows, and corporate commitments toward renewables, catalyzing a faster and more durable transition toward a cleaner and more secure energy future.
Malaysia: Positioned for the Energy Transition
Malaysia is relatively well positioned to capture this shift, supported by the National Energy Transition Roadmap (NETR), which sets out clear, measurable targets. Under the roadmap, Malaysia aims to increase renewable energy capacity to 31% of installed capacity by 2025, rising to 40% by 2035 and 70% by 2050. The country has also committed to achieving net-zero emissions as early as 2050, alongside plans to develop a domestic hydrogen economy and scale up energy storage solutions.
These targets are complemented by initiatives to modernise grid infrastructure and mobilise significant investment into green technologies, positioning Malaysia as a regional leader in the energy transition. As execution gains traction, the country stands to benefit not only from improved energy security, but also from sustained capital inflows into its renewable and transition-linked sectors.
Our View/Strategy
We continue to monitor developments in the Middle East and the responses from each party, as the situation remains highly driven by news flow. For example, speculation about the safety of Israeli Prime Minister Benjamin Netanyahu has surged on social media. In such an environment, it is important to separate noise from meaningful developments and focus on the longer-term implications for equities, which remain more relevant for investors. We are a strong advocate of a barbell strategy, balancing high-quality growth exposures with income-oriented assets to navigate bouts of volatility.
Disclaimer
The information contained herein does not constitute an offer, invitation, or solicitation to invest in any product or service offered by Phillip Capital Management Sdn Bhd (“PCM”). No part of this document may be reproduced or circulated without prior written consent from PCM. This is not a unit trust or collective investment scheme and is not an obligation of, deposit in, or guaranteed by PCM. All investments carry risks, including the potential loss of principal.
Performance figures presented may reflect model portfolios and may differ from actual client accounts’ performance. Variations in individual clients’ portfolios against model portfolios and between one client’s portfolio to another can arise due to multiple factors, including (but not limited to) higher relative brokerage costs for smaller portfolios, timing of capital injections or withdrawals, timing of purchases and sales, and mandate change (e.g., Shariah vs. conventional). These differences may impact overall performance.
Past performance is not necessarily indicative of future returns. The value of investments may rise or fall, and returns are not guaranteed. PCM has not considered your investment objectives, financial situation, or particular needs. You are advised to consult a licensed financial adviser before making any investment decisions.
While all reasonable care has been taken to ensure the accuracy and completeness of the information contained herein, no representation or warranty is made, and no liability is accepted for any loss arising directly or indirectly from reliance on this material. This publication has not been reviewed by the Securities Commission Malaysia.
