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The economic fallout of the US war on Iran is still unfolding and could deepen in the months ahead. For economies like Malaysia the question is: is the real economic shock still ahead, and is Malaysia ready for it? On this episode of #ConsiderThis Melisa Idris speaks with Nurhisham Hussein, Economic Adviser in the Prime Minister’s Office, and Head Secretariat of the Crisis Management Taskforce Team on the National Economic Action Council.
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00:10Hello and good evening, I'm Melissa Idris. Welcome to Consider This.
00:14This is the show where we want you to consider and where we consider what you know of the news
00:18of the day.
00:18Despite there being a two-week ceasefire in place between the US and Iran,
00:22the economic fallout of this war is still unfolding
00:26and it could deepen in the coming months.
00:30For economies like Malaysia, the question is,
00:33how do we respond to today's pressures while preparing for what comes next?
00:39And even if the fighting pauses, is the real economic shock still ahead of us?
00:46And are we ready for it? How can we prepare for it?
00:48Joining me on the show to discuss this further is Noor Hisham Hussain,
00:52who is Economic Advisor in the Prime Minister's Office.
00:55He's also the Head Secretariat of the Crisis Management Task Force Team
00:59of the National Economic Action Council.
01:02Hisham, good to have you back on the show. It's been a couple of years since you've been on.
01:06Yes, it has. I wish it was under better circumstances.
01:08Under better circumstances. Let's talk about that.
01:10So the current situation as we see it now,
01:12how should we understand what's happening at the moment
01:17beyond what we've been reading about this being an energy price shock story?
01:22Yeah. Okay. So it's a long story, but let me try to describe it this way.
01:29When you refine a barrel of crude oil, right?
01:34Most of what you get will be fuel.
01:37You'll have the petroleum, you'll have the diesel, you'll have the heavy bunker fuel,
01:42you'll have the jet kerosene and the like.
01:46But there's this portion right at the end where you go multiple stages,
01:52but roughly about 10% of a barrel of crude oil is in everything we do, we purchase, we eat.
02:00And, you know, I had a slight panic attack two weeks ago
02:05because I went into the supermarket and everything was plastic.
02:07Okay.
02:08Everything involves plastic.
02:09Yes.
02:09And plastic is an oil derivative, right?
02:13Our packaging, almost all our packaging requires plastic.
02:17Some of our adhesives require plastic.
02:19Some products are basically plastic, like sanitary towels, like diapers.
02:23Our garbage bins, you know, the garbage bags that we use every day is plastic, right?
02:29So this is, the impact is actually very wide ranging.
02:33I mean, we're just not talking about consumer goods.
02:35There's a lot of industrial inputs that are required as well,
02:39from sulfur to ammonia to helium.
02:42And for the electronics industry, they use that for burning the wafers and the like
02:47to make sure that the temperature is correct.
02:49So there's a fairly wide ranging impact that cuts across a lot of sectors.
02:54Okay.
02:54So I think a lot of what we've been talking about has been the price of oil.
02:57People are now monitoring the price of oil per barrel.
03:01How widely or how should we see the, how serious is it for the Malaysian economy?
03:08So I've had a real education in the oil and gas industry over the past month.
03:13Okay.
03:14The problem we have is that even if we have a peace settlement tomorrow,
03:19it will take the Gulf countries roughly three months just to reopen the oil wells that
03:24they had shut.
03:26Three months to reopen?
03:27Just to reopen.
03:29Because the shut-in process is very fast.
03:30You just basically cement it over, right?
03:33But then when you open it up again, because there's pressure underneath,
03:35you have to do it very slowly, right?
03:37And then you have damage to material and stuff.
03:40You have the bomb damage from the war effect and everything.
03:43But they tell us three months before we even get another drop of oil out of that.
03:47And we're talking about 12 million barrels a day that is off the market for the next three months.
03:53So even if we have a settlement tomorrow, we have a peace deal between Iran and the US, right?
03:59That's still 12 million barrels that are roughly about 10% plus of the global supply that's going to be
04:05missing for the next three months.
04:06Okay.
04:07So it's going to last quite a long while.
04:09They're not going to get full production until six months or more after that.
04:14There was a very similar situation during COVID where because the lack of demand and everything, they shut a lot
04:20of oil wells.
04:21It took them 18 months to come back to full production.
04:2518 months.
04:26So we could see this really dragging for quite a long while.
04:31So the way you're explaining it, how I'm receiving it is we're seeing almost like a multi-wave impact.
04:39And we've only just hit wave one.
04:41We've only hit wave one.
04:42How should we think about the sequencing of impacts?
04:46What is likely to come first?
04:47What will follow?
04:48So talk to me about the immediate pressure points Malaysia might feel.
04:52So that will depend on the stock levels we have of the products that we need, right?
04:57So fuel obviously is the number one, right?
05:00So currently we're up to, I think Petronas has guaranteed until June.
05:04It's costing them a bomb.
05:07It's not cheap because they're having to cover for the other.
05:09Petronas only supplies roughly half the need of the country.
05:12So the other supply comes from the other companies.
05:16But Petronas is having to cover some of that portion as well.
05:19And they're having to do it at physical oil prices, right?
05:22And there's a big difference between the oil price we see on the screen versus the oil price that you
05:26actually can take delivery of.
05:28Because the market price is for June, right?
05:33It's a futures price.
05:34So you buy now, you only get it in June.
05:36And then of course if you want delivery, you'll only get here July, right?
05:40But if you want the delivery now, you're having to pay something like 30, 40 US dollars above that market
05:46price.
05:46It's a big premium, right?
05:48So that's why when people are complaining why the APM price, the pump prices are not seeming to reflect market,
05:55it's because we're actually paying a large premium over the market price.
05:59Wow.
06:00We're having to, right?
06:02So that's wave one.
06:03Okay.
06:03Wave two is when we look at the oil derivatives, right?
06:07Coming down to, like I said, I've gotten a real education in the oil industry.
06:14You know, you start getting into things like NAFTA and ethylene and you get into plastic production.
06:20Okay.
06:20You get into some of the other stuff like bitumen for roads.
06:24So these are starting to get short now because it depends on how much stock is already in the system
06:29versus what they need to do to replace it.
06:31And do we know?
06:32Do we know what we have?
06:33Is there a good stock take?
06:36Currently, I think we'll start seeing the major impact probably in June because what a lot of the industries are
06:43telling us,
06:43we've got about two months stock, right?
06:46From the start of the war going on.
06:47And they were getting supplies that were shipped before the war happened and they're starting to get it now.
06:53So they have a little bit of leeway, but they're already starting to look at mitigation and BCP plans.
06:59I mean, business continuation plans for June onwards.
07:02So I think wave two is going to hit us in June and it's going to involve not just fuel,
07:06but it's also going to involve consumer goods and services
07:10and some of the critical things that we really need.
07:13Okay, so when you say June, technically that's six weeks away.
07:19That's about a month away.
07:21That's when you might see the more, the impact really kind of land.
07:27But what kind of time frame are we thinking about in terms of how long we could be experiencing the
07:34impacts of the war on Iran?
07:37So what's happening now is that we've been discussing with industry about what they need.
07:43I think in terms of raw materials that they used to get from the Gulf, which we can try to
07:48source from somewhere else.
07:52NAFTA is one of them.
07:54I think sulfur is another.
07:56Helium.
07:58There are various sources around the world.
08:00The Americans, for example, despite the fact that they started the war, are well-supplied with everything.
08:07So we could get some of that stuff from them.
08:10Wouldn't everyone else be doing the same?
08:13Exactly the same thing.
08:14Everybody's scrambling for the same, which is one reason why prices are rising.
08:18Because you've gotten 20% that's shut off in terms of oil supply for the rest of the world.
08:25Even we're looking at an extended period where at least 10% will be off for three months or more.
08:31And everybody's scrambling for the same things.
08:34Luckily, there are, I think, areas where some countries have more, some countries have less.
08:41So there's a lot of opportunity here for partner trade, if I can put it that way.
08:47Where we say, okay, I've got a little bit of this.
08:49Can you give me a little bit of that?
08:51For example, that's one of the things why Australia came to see us last week.
08:57They are in this unfortunate situation where they are a major oil and gas producer.
09:03But they don't have the refining capacity to actually manage all that oil.
09:07So they actually export everything and then they import it back.
09:09And coincidentally, one of the refineries caught fire that day.
09:16So they need refined fuel.
09:19They have crude.
09:20So they can sell that crude, but they want some assurance that they'll get the refined fuel back.
09:24Back, okay.
09:25Is that where Malaysia comes in?
09:27And Malaysia also has this dependency on Australia for phosphate.
09:32And it's one of the major fertilizer areas.
09:35So we get almost all of it from Christmas Island.
09:38So that's one of the things we want to have assurance of is that we get that fluid.
09:41Okay, so there is almost this kind of, a lot of bilateral G2G negotiation that has to happen.
09:48Talk to me, Hisham, about what that means.
09:50From a policy standpoint, from a government preparedness standpoint,
09:54what does preparing for impact mean in practical terms?
10:01One, we follow the three-stage process.
10:04First of all, make sure that we have the basics.
10:07So do we have enough fuel?
10:09Mostly.
10:10Do we have enough food?
10:11Yes, mostly.
10:13We're a bit short of vegetables, but we're okay on the rest.
10:15Do we have enough medicines?
10:17And yes, we've got enough stock for quite a bit.
10:20The one that worried me was, do we have enough packaging?
10:23Okay.
10:24Right?
10:24But we're working on that one.
10:26The second stage is looking at how do we stretch these supplies as much as we can.
10:30Looking at the scenarios that we're looking at.
10:33We need to survive June, July until we can get alternative sources into our industries to make the stuff that
10:38we need.
10:39And of course, at this stage, we're also looking at, okay, these are the countries we need to have negotiations
10:44with, right?
10:46For example, I think last week, MOH managed to secure a supply of plastic resin from China, which is highly
10:54critical.
10:55Unfortunately, the news, people didn't really catch on to that news, but yes, we secured that.
11:01I think there's a lot of supply chain learning that we have to learn in this economic crisis.
11:06And basically, economies are fairly complex.
11:10And we don't have enough information across the whole supply chain to actually go in and say, okay, we've got
11:16enough of everything.
11:17But right now, it's largely survival mode.
11:19Phase one, let's get the basics right.
11:21Phase two is how do we stretch all these supplies.
11:24Survival mode.
11:25Can you be more specific?
11:28What buffers does Malaysia have, either in terms of these policy tools or our reserves or our institutional capacity?
11:36In terms of fiscal space, how much space does the government realistically have to cushion what we're seeing as multiple
11:44waves?
11:45I think at this stage, we have not looked at that, to be honest.
11:49We do what we have to.
11:50I think as far as protecting the people.
11:53On the supply chain side, I think we've gotten a fair idea of what we need.
12:00We're validating that data right now.
12:02And we know which countries we need to talk to.
12:03And those conversations are ongoing today.
12:10So, like I said, I think June, July, if we can get past that period, I think we'll be okay
12:15because once we get the alternative sources in.
12:17Now, in terms of inflation, a big chunk of how we're protecting the people is the fuel subsidies.
12:24Roughly about 80-85% of diesel users are actually under the subsidized scheme.
12:30Whether it's Budi Individu or Budi Agri, Budi Diesel, SKDS, the Fleet Cards and the like.
12:38Roughly about 80-plus percent of users.
12:41There is a big chunk that actually half the volume is actually done, is not subsidized.
12:46And that's where the pain is coming in right now.
12:48Whether it's construction, whether it's some aspects of agriculture not covered.
12:56We're trying to resolve those issues right now.
12:59Petrol is still okay.
13:03But it's very expensive.
13:05Well, there's a cost.
13:07Someone is absorbing this cost.
13:09Do you think that because there is this cushion of fuel subsidies,
13:14that Malaysians are not, I guess, as realistically aware of the urgency of what's happening?
13:22I think we're extraordinarily lucky that we have Petronas.
13:28Because we have the stocks, we have the refining capacity.
13:33Because Petronas does a lot of trading as well,
13:35they have the relationships with all the big trading companies in the countries
13:38that we trade oil that we can rely on to actually secure supplies.
13:43It is expensive though.
13:45I calculated last night, the fuel subsidy is now costing us RM2,300 every second.
13:51I'm sorry, could you repeat that?
13:52RM2,300 every second.
13:55That's the average salary of a Malaysian worker.
13:57Every second?
13:58Every second.
13:59So we already got 10k.
14:00This is a half an hour show.
14:03It's RM2,000,000 every day.
14:06It's very expensive.
14:08Do we have the fiscal space?
14:10Honestly, no.
14:11We don't.
14:12We don't.
14:12And it's on the government side,
14:15what we're looking at is cutting down on expenditure a lot.
14:17Because the nature of this crisis is that it's not like other previous financial crises.
14:22You can't do a stimulus.
14:24Okay.
14:24That's interesting because you've been an economist for a while.
14:28I mean, I say that with all due respect.
14:31Not belittling you.
14:32Anyway, based on your experience,
14:36how different is this crisis from the others that we've managed to weather?
14:41I would say that the majority of Malaysians would not have the living memory to remember 1973.
14:48They would not remember 1979 because those are the closest parallels.
14:53Why do you cite those?
14:55Those are, that's when the first and second oil crisis, the global oil crisis,
14:59you know, the oil embargo for the United States and everything,
15:02where, you know, you just couldn't get the fuel supply.
15:06Okay.
15:07Right.
15:08So this is a supply-driven crisis.
15:10It's not a demand-driven crisis.
15:12Not like COVID.
15:13When we, COVID, we basically locked everybody down and said,
15:16you can't go out, right?
15:18So there was this massive drop in demand.
15:20This time, it's a massive drop in supply.
15:23Right.
15:25And how we manage that is going to be radically different from how you manage a demand shock.
15:30This is a supply shock.
15:31So it's not about even a question of, like you said, the government's trying to cut back or,
15:37it's not about austerity versus pump priming.
15:40How do you see it?
15:41So it is necessarily austerity because the demand now exceeds the supply because supply has dropped.
15:46So from the government side, we have to cut.
15:49Cut expenditure, cut what we're doing, I think, in terms of projects and things like that.
15:54But it's a very big hole.
15:56Do you worry that there could be a risk of a broader slowdown in the economy?
16:01That will happen, I think, because I think we're not insulated from what happens outside Malaysia.
16:08So that will have an impact.
16:10There are sectors that are doing very well, despite this crisis,
16:15because they're not part of the petrochemical change.
16:19Okay.
16:20AI is not, mostly.
16:23Fintech, basically, the ICT is facing some problems, but that was not crisis-related.
16:30It has to do with the shifting from consumer to data center equipment.
16:37So there were some cost pressures there.
16:39But largely speaking, I think the IT side is doing okay.
16:43Some services are doing okay.
16:45The kind of conversations, I got lots of WhatsApp groups.
16:48So the conversations there, it's like there's no crisis happening.
16:53Yeah.
16:54And in other groups, it's massive crisis.
16:56I don't think I could survive.
16:57Okay.
16:58Let's talk about that.
17:00Let's separate, I guess, households with businesses.
17:03So I'm sure businesses are worried.
17:06I'm sure businesses have their feelers out, they're reading their data,
17:10and they think that there's trouble, there's tough times ahead.
17:14When you talk to businesses, what are they most worried about,
17:17and what are you telling them how they can manage the future waves?
17:23Supply.
17:24It's basically, a lot of it's concerned around,
17:27one, I can't get supply, or I can get it, but it's very expensive,
17:30or I can get it, it's very expensive, but they ask for reduced credit terms.
17:35In other words, I have to pay cash on the barrel.
17:36Right?
17:37So that's why I think cash flow support is very important.
17:40Okay.
17:42Helping businesses find alternate supplies is important.
17:46And the government can help with that?
17:48Yes, because I think, like I said, there's a lot of,
17:50there's some nationalism going around, I think, from an economic perspective.
17:54I think China has restricted some exports, for example.
17:56Is it fear-driven?
17:57Yes, it's fear-driven.
17:59And it's perfectly understandable, because we're looking at the same thing.
18:02We're saying we need to protect our domestic economy first, right,
18:07rather than exports or imports or whatever.
18:09So we need to get those supplies in,
18:11whatever we have available that's left over that,
18:14maybe we could talk about.
18:15But we need to ensure that domestic supply comes first.
18:18So if we see the Prime Minister heading abroad in the next few weeks,
18:22that's really to establish a relationship for us to get supply?
18:27I think we have been extraordinarily lucky as well
18:31that we have actually been going out the last three years
18:34and building relationships.
18:35Okay.
18:35This has been a long game.
18:36Yes.
18:37And now it's coming to roost,
18:39and we're getting the benefits of that,
18:40because we don't have to go out, they're coming here.
18:43Okay.
18:44Australia.
18:44Australia, for example.
18:46So that's businesses.
18:48So clearly businesses are worried about supply
18:50and I guess their cash flow over the next few months.
18:55What about households?
18:56I think for households, they're mostly insulated
18:59because we still have the RON95 subsidy.
19:02There's a small percentage of households that use diesel
19:07and I feel their pain
19:09because I stopped using Budi95 before Raya.
19:12And it's been painful.
19:15I can't even get a full tech anymore
19:17because I keep hitting the RM200 cap.
19:20So I understand.
19:21I understand that there's a lot of pain there.
19:23There's a lot of pain for some businesses that rely on diesel.
19:27And they're having to pay commercial prices,
19:29which is even higher than pump price.
19:32So there's significant pain there.
19:34And this is affecting some fishermen.
19:38It's affecting some farmers, vegetables.
19:44Even I think paddy farmers are being affected
19:46because fertiliser prices have gone up quite substantially.
19:50So I would not say we're totally insulated.
19:53I think as far as households are concerned,
19:54as long as we can keep the consumer goods flowing,
19:57as long as we can manage the price increases
20:01due to the increase in prices of logistics,
20:03we can protect the domestic side.
20:06We cannot protect the international side.
20:08Because once it gets here, it's already expensive.
20:11So that pass-through is happening.
20:13And that's why we're seeing...
20:14And we are quite import.
20:17Yes.
20:17I wouldn't say it.
20:19Unfortunately, we are, especially for food.
20:21For food.
20:21And for vegetables, for example.
20:22We get chilis from overseas, cabbage from overseas.
20:26Well, what does this all mean practically for the household, Hisham?
20:30There is a concern that there could be panic buying.
20:34But you want there to be a level of urgency
20:37without there being a level of alarm or panic.
20:39So I think what we need...
20:42Because this is a national crisis.
20:47We hope we can get households and businesses to play their part.
20:50In what way?
20:52In making sure that one is that don't buy more than you need.
20:56Okay.
20:56We need it to stretch.
20:58Right.
20:58We need everything to stretch.
20:59So like I said,
21:00first priority is making sure we've got the basics.
21:02Second is to stretch everything.
21:05Don't drive if you don't have to.
21:07I know there's issues with public transport.
21:09But there's unplanned trips.
21:11You don't need to plan your shopping, for example.
21:13Try to do it once a week rather than dropping off at 99
21:16and then going to Giant or whatever.
21:22I think be mindful of what we're using.
21:25It's not so much that we're asking austerity from households.
21:29But let's get together.
21:31Because the more we can stretch the supplies,
21:34the better off everybody will be.
21:36Rather than...
21:37Because if you hoard, it actually hurts everybody around you.
21:41And I think just like COVID, we need to come together.
21:44Right.
21:45Yeah.
21:45It's the survival mode that you speak of.
21:48And I think there needs to be a sense of coming together for this crisis.
21:56When you look at your data points,
21:58Hisham, you're watching quite a lot, I'm sure.
22:00What are you watching out for in the...
22:03What indicators are you watching most closely for in the coming months?
22:07The reason I ask this is because I think one of the reasons
22:11why people feel like it hasn't hit their pocket yet
22:14is because we're seeing a lot of great headlines.
22:16You know, Bank Negara just came up with an economic forecast.
22:21Quite rosy in most people's opinion.
22:24So how do we jive that?
22:26How do we square a looming economic crisis with glowing economic forecasts?
22:30I think because this is not that kind of crisis.
22:34You know, I don't expect a recession, to be honest.
22:38You don't expect a recession.
22:39I don't expect a recession.
22:40And because, like I said, this is not a demand-side problem.
22:43It's not an income problem.
22:45It's a supply-side problem.
22:47If we can solve the supply-side, the economy will do fine.
22:50Yes, there will be inflation.
22:51I can't deny that.
22:52It will be, and some of it's going to be painful, right?
22:55Especially on food.
22:57But we can survive that.
22:59And I think growth will continue.
23:02There will be impact, I think, in terms of real incomes.
23:04There will be impact, I think, in terms of potentially production disruptions.
23:08But it's not a lockdown like COVID.
23:10Okay.
23:11Right?
23:12And those production problems will largely come from,
23:15I can't get the supply.
23:17Right?
23:18Otherwise, still business as usual.
23:21Okay.
23:21So my concern is, if those growth will continue,
23:26the numbers will look great.
23:27But it's not reflective of what people feel on the ground.
23:31Absolutely.
23:31When they pay for food, when they shop,
23:33the purchasing power is smaller.
23:35Yes.
23:36Are you concerned there's a risk that it builds resentment
23:39and that disconnect between what's being reported,
23:42the data that the government's putting out,
23:44versus how people feel?
23:46Yeah.
23:47I think there was this joke,
23:49yes, GDP is doing fine.
23:50Yeah, but it's not my GDP, right?
23:54Yeah.
23:55I think that I would tend to generally ignore the numbers at this moment in time.
24:01Actually, I'm not even doing that at M10.
24:03Oh, what are you watching?
24:03We're not even paying attention to that.
24:05We're actually talking to companies about their inventory levels,
24:10what are their mitigation plans,
24:13what are their alternate sources of supply that we can help them with,
24:17because it's that kind of crisis.
24:19It's not a data crisis, right?
24:21Because the data is going to come out too late for us to react.
24:24Okay.
24:25Oh, I see.
24:26Like, inflation numbers will usually come out three weeks after the month.
24:30There's a timeline.
24:31We're not seeing that.
24:33We can see it on the ground.
24:35We're not going to see those numbers until, you know, two months after, right?
24:39And there's no way we can react fast enough if the data is two months late, right?
24:43So we have to actually talk to the source.
24:45We actually have to talk to the people on the ground about what they're seeing,
24:49about what their businesses are going through.
24:53There are issues around whatever government assistance that we can give.
24:58There's bureaucracy that we need to overcome.
25:00It should not take six months to approve a loan, right?
25:05So those kinds of, I think delivery is very important.
25:09Delivery implementation.
25:11So let's survive till June and then we'll reassess June, July.
25:16That's when it's likely to hit.
25:19Yes, we'll have a better picture.
25:20Yes, we'll have a better picture around end of the next month.
25:24I think in terms of what we need to go through as well as what we need to do.
25:28Right now it's more about we've got the basics done.
25:32Let's look at the rest.
25:34I hope to catch up with you again in June and July.
25:36Hisham, thank you so much for coming on the show and sharing some of these insights with us.
25:39I appreciate your time.
25:41That's all the time we have for you on this episode of Consider This.
25:44I'm Melissa Idris signing off for the evening.
25:46Thank you so much for watching.
25:47Good night.
25:48Good night.
25:49Good night.
25:50Good night.
25:51Good night.
25:53Good night.
25:59Good night.
26:00Good night.
26:01Good night.
26:01Good night.
26:01Good night.
26:01Good night.
26:01You
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