A conflict that’s set to hurt margins

THE pressure on oil markets is off – for now – thanks to the two‑week ceasefire between Iran and the United States.

But even if the truce holds, the conflict that erupted on Feb 28 has already driven up logistics costs and created shortages of imported raw materials, meaning Malaysian companies cannot simply return to business as usual.

Analysts say the full impact on corporate earnings is likely to surface only in the coming quarters, as cost pressures work through supply chains beyond the typical three-month inventory cycle.

“Impact in the first quarter of 2026 (1Q26) will be modest. The real drag lands squarely in 2Q26 when higher energy costs, rising electricity tariffs (as the automatic fuel adjustment mechanism shifts from rebate toward surcharge territory by mid-2026), and costlier imported raw materials fully flow through to (profit) margins,” iFAST Capital Sdn Bhd’s Kevin Khaw Khai Sheng tells StarBiz 7.

Even with the temporary pause in hostilities, companies continue to face operational pressures due to elevated oil prices, which now hover in the US$95 range (down from above US$100) but remain far above pre-conflict levels of US$60–US$70 per barrel.

Khaw says oil prices will not likely return to the pre-conflict range in the near term.

This will weigh on margins, particularly for sectors reliant on fuel, logistics, and imported materials, and even firms with pricing power may struggle to pass these costs to customers.

“Businesses cannot assume a return to normal operations any time soon. The ultimate economic impact, including on earnings and supply costs, will depend heavily on the final terms of any long‑term agreement,” Khaw adds.

Tradeview Capital Sdn Bhd founder and chief executive officer (CEO) Ng Zhu Hann sees the earnings drag spreading across a wide range of sectors, from airlines and logistics to plastic packaging, construction, and consumer goods.

The potential upside is for companies in the oil and gas sector. However, if the conflict drags on and oil prices remain elevated, inflation could rise and increase the risk of slower growth, he says.

Comparing the current disruption to the impact of the Covid-19 lockdown in 2020, Ng says the latter was far more severe due to the total halt of economic activity.

“If the war ends tomorrow, concerns over elevated oil prices would ease. But I do not think the resolution is straightforward, given the assassination of a sovereign leader.

“The repercussions are real,” he says.

For some companies, higher costs are compounded by supply challenges, with delays or shortages persisting despite available funds.

Earlier this month, Farm Fresh Bhd said the US-Iran conflict could directly affect about 8%–10% of its costs, driven mainly by higher packaging, logistics and utility costs.

This week, Bloomberg reported that glove maker WRP Asia Pacific Sdn Bhd is winding down its operations, while industry leader Top Glove Corp Bhd is considering raising prices – a sign of the growing strain on margins across sectors.

Ng says the impact of higher energy costs will unfold over time.

“In the short term, companies feel it through direct fuel expenses, but over the longer term, the bigger impact comes through higher input costs.

“While some firms may be able to pass on these increases, most are unlikely to fully transfer the cost to end consumers.”

Ng says Tradeview is not taking large positions in stocks. Instead, it has been increasing its cash holdings relative to its portfolio and remains defensive, prioritising high dividend-yielding companies.

Meanwhile, iFAST’s Khaw says banks remain relatively insulated, supported by stable net interest margins, strong dividend payouts, and potential upside if Bank Negara Malaysia (BNM) tightens interest rates.

The healthcare sector is also seen as more resilient, given their lower exposure to the broader macroeconomic backdrop.

He adds that the current situation is more complex than past oil shocks, such as those in 1973 or 1990, due to today’s interconnected, just-in-time global supply chains with less buffer against sustained disruptions.

“During previous military conflicts, oil prices typically surged for three to six months before reverting. BNM, however, warns that the current conflict could unfold differently.

“If the Strait of Hormuz remains partially disrupted beyond 2Q26, the earnings impact could prove longer‑lasting, particularly under the concurrent tariff overhang and tighter global monetary conditions,” Khaw adds.

In an April 9 report, BIMB Research forecasts Brent crude to average US$90 per barrel for the remainder of the year and expects oil production and flows through the Strait of Hormuz to normalise only from 3Q26.

To be sure, the ceasefire remains fragile. A day after it was announced, Iran alleged multiple violations, including attacks in Lebanon and a drone entering its airspace.

While the truce sparked a risk-on rebound for equity markets ahead of peace talks this weekend in Pakistan’s Islamabad, trading is expected to remain choppy and headline-driven, with sentiment hinging on developments around the Strait of Hormuz, which handles about one-fifth of the world’s oil and liquefied natural gas supply.

Areca Capital Sdn Bhd CEO Danny Wong says the conflict and the resulting energy supply disruption is a wake-up call for structural change and longer-term thinking.

Governments must diversify energy sources and accelerate renewable investment to strengthen national resilience.

Corporates, meanwhile, should boost productivity, reduce reliance on a single energy source, and improve fuel efficiency across manufacturing processes, Wong adds.