KUALA LUMPUR: Malaysia risks placing additional pressure on fuel security and public finances if fuel prices are kept artificially low for too long as this can distort the market and reduce the effectiveness of subsidies, an industry executive said.

General manager of Petron Malaysia Mohd Nizam Mansor told Business Times that aligning domestic fuel prices closer to market levels is essential to ensure long-term supply stability.

He warned that prolonged price controls could lead to imbalances in supply and demand, particularly when Malaysia's fuel prices are significantly lower than those of neighbouring countries.

"When our prices are much cheaper than in neighbouring countries, it can encourage cross-border smuggling, which means subsidised fuel might not reach the Malaysians who need it most.

"Keeping prices closer to market levels helps reduce this leakage. It also supports a sustainable pricing structure that allows the industry to continue importing, refining and distributing fuel reliably across the country," he said.

Nizam added that cross-border smuggling and misuse of subsidised fuel remain key challenges to the nation's subsidy framework.

Diverting subsidised fuel abroad not only limits domestic availability but also raises subsidy costs, further straining government resources.

"It also puts extra pressure on domestic supply, which can create market instability.

"By keeping fuel prices closer to market levels, we can reduce these incentives for leakage and ensure that subsidies benefit Malaysians as intended," he added.

Despite being an oil-producing country, Nizam said Malaysia remains vulnerable to global oil price swings, especially amid geopolitical conflicts.

He said the ongoing tensions in the Middle East, including around Strait of Hormuz and Iran, have disrupted global supply routes and driven up benchmark prices such as Brent crude.

He said Malaysia relies on both domestic refinery output and imported fuel to meet demand, making it exposed to global pricing movements.

"Conflict in the Middle East has disrupted crude supply flows, which have affected refinery production in the region causing reduced availability of gasoline and diesel.

"These developments are reflected in global market benchmarks, which have escalated as the conflict continues."

Nizam said periodic adjustments to domestic fuel prices in line with global trends are necessary to ensure the sustainability of the country's fuel supply system.

Malaysia's fuel prices have closely mirrored Brent crude oil movements, which have surged over 30 per cent since early March amid geopolitical tensions involving the United States and Israel against Iran.

Since March 9, Brent crude has surpassed the US$100 mark amid heightened geopolitical tensions, with prices spiking to around US$140-US$160 per barrel in the physical market at one point in early April.

In response, the government gradually increased prices for RON97, unsubsidised RON95 and diesel, while keeping the subsidised RON95 at RM1.99 per litre.

Diesel recorded the sharpest cumulative increase, followed by RON97 and unsubsidised RON95, reflecting the broader impact of rising global oil prices.