3 Mideast conflict scenarios Malaysia must prepare for

Malaysia must prepare for three potential scenarios arising from the conflict in West Asia, according to Penaga Research and Consultancy. The first scenario involves the reopening of the Strait of Hormuz and the Bab-el-Mandeb strait, which could lead to a return to normal energy prices and trade flows. Malaysia should treat this as the base case and stress-test its fiscal planning accordingly, as the country has already seen trade gains in liquefied natural gas and petroleum products due to wartime prices.

The government needs to differentiate between temporary economic benefits and long-term gains, such as plants built in Malaysia.

The second scenario to prepare for is the continuation of blockades at both waterways. Malaysia should expedite the expansion of its ports to increase capacity, as Port Klang's container throughput has risen by 5.4% in the first half of the year compared to the same period last year. In addition, Malaysia should address "documentary friction," such as separate import permits and duplicated checks between Malaysia and Singapore, by adopting a UN model law on electronic transferable records to streamline the Johor corridor.

The third scenario involves escalations beyond the Middle East, specifically Iranian-linked proxy action further east and friction between superpowers in the South China Sea. The Houthi group's shift from attacking ships to controlling territory highlights the need for Malaysia to build institutional crisis-management capacity, independent of any single leader's personal credibility.

Malaysia's success in benefiting from geography and a fortunate semiconductor cycle suggests that the country's future is more a result of circumstance than deliberate design, according to Penaga Research and Consultancy.