Higher Petronas dividend may constrain its capital allocation

Malaysia's rising fuel subsidy costs are drawing attention to Petronas' fiscal contributions. A larger dividend to the government, driven by high oil prices, could limit Petronas' spending on upstream activities and gas infrastructure, warns BIMB Securities. The research firm says Petronas' capital allocation could be pressured if the government demands a bigger dividend from the oil giant to offset higher fuel subsidy costs.

BIMB Securities predicts Petronas' dividend to the government could reach RM48 billion in 2026, while the fuel subsidy bill may reach RM50 billion, assuming Brent crude trades at US$95 a barrel. In 2025, Petronas paid RM32 billion in dividends, and the fuel subsidy bill was RM30 billion. The research house expects Petronas' dividend to drop to RM32 billion in 2027 and RM25 billion in 2028, as crude prices are forecast to fall to US$85 a barrel in 2027 and US$75 a barrel in 2028.

In Budget 2026, Petronas' dividend was estimated at RM20 billion for the year, with total petroleum-related revenue projected at RM43 billion, or 12.5% of federal revenue. However, these projections were made before the US-Iran war began this year, causing crude prices to exceed US$100 a barrel. Even as oil prices stay high, refined product prices and resilient fuel demand are pushing up fuel subsidy costs.

The gap between crude and refined product prices may make it challenging to boost fiscal consolidation, BIMB Securities adds.