As geopolitical rivalries intensify in the South China Sea, Malaysia’s fractured politics is leaving its national oil company dangerously exposed, says a senior fellow of the Malay Economic Action Council (MTEM).
Yazid Othman said Malaysia’s fragmented political landscape since 2018 has weakened the federal government’s hold on Petronas at a time when external powers are showing greater interest in the region’s energy assets.
He said the turning point came after the 2018 general election, when Sarawak’s ruling parties broke away from Barisan Nasional (BN) to form Gabungan Parti Sarawak (GPS) and began pressing for more control over local resources.
“When the federal government is weak, and when states like Sarawak assert more autonomy, that creates space for foreign powers to take advantage,” he told FMT.
He said international energy firms and neighbouring countries have expanded their engagement with Sarawak, which has set up state-owned company, Petroleum Sarawak Bhd (Petros), to explore the state’s hydrocarbon resources alongside Petronas.
“It’s not just geopolitics. It’s capitalism and politics intermixed. And compared to 20 years ago, the situation is far more complicated,” he said.
Yazid said that for decades under BN rule, Petronas functioned as a national institution, consolidating petroleum resources from producing states under an exclusive mandate vested in the company by the Petroleum Development Act 1974 (PDA).
That arrangement made the national oil company a reliable cash cow, delivering tens of billions in dividends that funded development and stabilised the country’s finances during economic downturns, he added.
Petronas’s political risk
Section 6 of the PDA places Petronas under the prime minister’s authority, tying its fortunes to the country’s political leadership.
The section states that no entity other than Petronas may process or refine petroleum, or produce its petrochemical products, without the prime minister’s permission.
As a result, Yazid said the company’s fortunes were inextricably linked to the political survival of the prime minister.
“When the prime minister is strong, Petronas is strong. But when the prime minister is vulnerable, Petronas is vulnerable too,” he said.
This dependence has created what Yazid described as a dangerous feedback loop: Petronas funds the government, but the government’s instability compromises the national oil firm.
On Aug 28, former law minister Zaid Ibrahim and Pasir Gudang MP Hassan Karim called for greater transparency in negotiations between Petronas and Petros.
Hassan said openness was crucial given the federal government’s reliance on GPS for stability, warning that any lack of transparency could fuel perceptions of concessions made purely to secure support.
Zaid urged accountability from both Petronas and Petros, cautioning that secrecy risked enabling “unfair horse trading” between them. He proposed establishing a bipartisan parliamentary caucus comprising peninsula and Sarawak MPs to serve as a formal platform for structured dialogue and oversight.
With Malaysia’s maritime borders increasingly contested and foreign players watching closely, Yazid warned that political fragmentation was no longer merely a domestic concern, but has become a strategic vulnerability.
“When the central government is weak, fissures appear. Others — whether elites, corporations, or foreign powers — will take advantage. And that has extraordinary consequences for Petronas,” Yazid said.
