Why Oil and Palm Oil Shares Are Rising Amid the Iran Conflict
Which Malaysian shares are benefiting or worsening due to the Iran war?
I notice that crude oil and oil palm related shares are increasing compared to others. Why is that?
How long will this war last?
Is the effect on shares just temporary, like in previous wars?
The recent escalation of the US-Iran conflict has indeed created a "mixed bag" for Malaysian shares, with clear winners and losers emerging in the early days of March 2026. Your observation is correct: crude oil and oil palm-related shares have generally increased. This is primarily due to the direct and indirect effects of rising global energy prices sparked by the conflict.
Here is a breakdown of which Malaysian sectors are being affected and why, based on the latest market analysis.
Sectors Benefiting from the Conflict
The primary beneficiaries are those directly or indirectly linked to the surge in commodity prices.
Oil & Gas (O&G) Companies: The most direct beneficiaries. The conflict, particularly the threat to the Strait of Hormuz through which about 20% of the world's oil passes , has caused Brent crude prices to spike. This has driven a rally in O&G stocks, with the Bursa Malaysia Energy Index hitting a 13-month high .
Plantation Companies (CPO): The link here is indirect but powerful. Crude palm oil (CPO) prices often track crude oil because oil is used in its production and transportation, and more importantly, because high crude oil prices make palm oil a more attractive feedstock for biodiesel. This has pushed CPO futures above RM4,100 per tonne .
LNG Exporters (Macroeconomic Benefit): At a macroeconomic level, Malaysia is a major exporter of Liquefied Natural Gas (LNG). Higher global energy prices directly improve the value of these exports, which is expected to strengthen the country's current account balance and provide support for the Malaysian Ringgit .
Sectors Worsened by the Conflict
On the flip side, sectors exposed to higher operating costs and consumer uncertainty are facing headwinds.
Aviation: This sector is taking a direct hit from the surge in jet fuel prices. With aviation fuel reportedly jumping to US$125, costs for airlines have skyrocketed, threatening profits .
Financial Services (Banking): Banking stocks have been vulnerable to profit-taking amid the uncertainty. As a proxy for the overall economy, any fear of an economic slowdown or market volatility can lead investors to sell off banking shares .
Why Oil and Palm Oil Shares Are Outperforming
To directly answer your question, here is a simple comparison of the two winning sectors:
How Long Will This Last? Temporary or Long-Term?
The duration of the effect on shares is highly uncertain and depends entirely on the war's trajectory. Analysts currently envision three main scenarios :
Short & Contained (Most Likely): If the conflict is brief (2-3 weeks) and the Strait of Hormuz remains open, the impact will likely be temporary. Oil prices could spike and then retreat, leading to a short-term "knee-jerk" sell-off in the broader market, followed by a rebound. The effect on O&G and CPO shares would fade as the risk premium in the oil price dissipates .
Prolonged with Disruption: If the conflict lasts longer (over 3 weeks) and disrupts tanker traffic in the Strait, the effects could be more sustained. Oil prices could be supported in the $70-$90 range or higher . This would provide a longer tailwind for O&G and CPO shares, but the negative impact on the broader economy (supply chain costs, inflation) would intensify, potentially dragging down the overall market.
Major Escalation (Less Likely): A full and prolonged blockade of the Strait would be catastrophic, sending oil prices potentially above $150 . While this would cause O&G and CPO stocks to skyrocket initially, the resulting global economic shock would likely plunge the entire market, including those sectors, into a bear market as recession fears take hold .
Is This Temporary? Lessons from Past Wars
History suggests that for the broader market, the impact of such geopolitical events is often temporary, provided the economic damage is contained.
As seen in the 2003 Iraq War, the Malaysian KLCI actually rose nearly 23% for the year, despite short-term shocks . Similarly, the 2025 Israel-Palestine conflict saw the index dip only 1%, showing relative resilience .
However, the duration for specific sectors like O&G and CPO is different. Their share prices will remain elevated as long as the "risk premium" is baked into commodity prices. Once the conflict de-escalates and the threat to oil supply routes fades, analysts expect oil prices to normalize downwards , and with it, the outperformance of these sectors is likely to moderate.
In summary, the current rally in oil and palm oil shares is a classic knee-jerk reaction to a geopolitical supply shock. While it could last for weeks or even months if the conflict drags on, history and current analysis suggest that once the immediate crisis passes, the effect will prove temporary, and share prices will eventually realign with broader economic fundamentals
Can you analyse the trend of palm oil prices during previous wars over the past 30 years, and which past war do you think the current conflict will be most similar to?
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Excellent question. By overlaying the chart of the last 30 years of palm oil prices with the timeline of major conflicts, we can identify patterns and make a more informed assessment of how the current situation might unfold.
Based on the data from your chart, here is an analysis of palm oil price trends during previous wars and what it might tell us about the current Iran conflict.
Analyzing the Historical Trend of Palm Oil Prices
Your chart shows the monthly price of palm oil in USD per metric ton from 1990 to early 2026. When we map major conflicts onto this timeline, some distinct patterns emerge, though it's crucial to remember that correlation is not always causation. Palm oil prices are driven by a complex mix of factors, including weather (El Niño), energy prices, and demand from major importers like India and China.
Let's look at three key periods of conflict:
1. The Gulf War (1990-1991)
The Context: Iraq's invasion of Kuwait led to a spike in crude oil prices due to fears of supply disruptions.
The Chart's Story: The chart shows palm oil prices rising from a low of roughly $250/ton in mid-1990 to a peak near $400/ton in early 1991. This was a significant percentage increase.
The Connection: This is a classic example of the "substitution effect." The spike in crude oil made palm oil, a key feedstock for biodiesel, more attractive. It also raised overall production and transportation costs. The price increase was sharp but relatively short-lived, subsiding as the conflict ended quickly and crude oil prices stabilized.
2. The Post-9/11 Era & Iraq War (2001-2003)
The Context: While not a single conflict, this period saw the War in Afghanistan and the lead-up to the 2003 Iraq War, creating sustained geopolitical uncertainty in the oil-rich Middle East.
The Chart's Story: The chart during this period is more complex. Palm oil prices were already in a long-term uptrend, driven by rising demand from emerging economies. However, the uncertainty contributed to a supportive environment for commodities. The price climbed steadily from around $300/ton in 2001 to over $500/ton by early 2004.
The Connection: The link here was more indirect. Sustained high oil prices due to Middle East tensions created a long-term floor under palm oil prices, making the vegetable oil more competitive as an energy source. The effect was a gradual climb rather than a sharp spike.
3. Major Price Surges (2007-2008 & 2010-2012)
The Context: This period is dominated by the Global Financial Crisis and the subsequent Arab Spring, which caused major instability in North Africa and the Middle East, including disruptions to Libyan oil supplies.
The Chart's Story: This is the most dramatic part of the chart. Palm oil prices skyrocketed to an all-time high of over $1,200/ton in 2008, crashed during the financial crisis, and then rebounded to a second peak near $1,100/ton in 2011.
The Connection: While the initial 2008 spike was more about a broad commodities boom and demand, the 2011 peak is strongly linked to the Arab Spring. The turmoil and fear of wider oil supply disruptions sent crude oil prices soaring, which once again pulled palm oil prices up with them. This demonstrates how significant and sustained geopolitical risk in the Middle East can lead to multi-year high prices for palm oil.
The Current War: What Can We Expect?
Based on this historical context, here is an analysis of what the current Iran conflict might mean for palm oil prices.
| Historical Precedent | Likely Scenario for the Current Iran Conflict |
|---|---|
| Gulf War (1990-91): A Sharp, Short Spike | This is the most likely scenario if the conflict remains short and contained. We have already seen a knee-jerk reaction. If the Strait of Hormuz remains open and the fighting doesn't escalate dramatically, the "risk premium" in oil (and thus palm oil) will fade. Prices may stay elevated for a few weeks to a couple of months but are likely to retreat as the immediate panic subsides. This aligns with the "Short & Contained" scenario mentioned in the previous answer. |
| Post-9/11 Era: A Gradual, Sustained Uptrend | This scenario becomes relevant if the conflict turns into a prolonged, low-boil confrontation rather than a full-blown war. If the market perceives that the Middle East is entering a new, long-term period of instability (even without major oil supply disruptions), it could keep a persistent floor under crude oil prices. This would support palm oil at a higher trading range for a longer period (e.g., 6-12 months). |
| Arab Spring (2011): A Major, Prolonged Spike | This is the escalation scenario. If the conflict broadens to directly threaten oil shipping through the Strait of Hormuz, or if it draws in other major powers, the spike in crude oil could be dramatic and sustained. This would pull palm oil prices towards, or even beyond, their previous highs, as seen in 2011. The effect would not be temporary and would have severe global economic consequences. |
Conclusion:
The historical pattern is clear: Middle East conflicts act as a powerful catalyst for palm oil prices, but the duration of the effect is entirely dependent on the nature and scale of the war.
A short, sharp conflict typically leads to a temporary spike (like the Gulf War).
A period of sustained instability leads to a prolonged elevation of prices (like the early 2000s).
A major supply-disrupting war leads to an extreme, though potentially destabilizing, boom (like the Arab Spring peak).
Given the current analysis from your previous query, the market is currently pricing in the short, sharp spike scenario. However, the situation remains highly fluid, and the ultimate impact will depend on whether the conflict remains contained or escalates into a more serious threat to global energy supplies.
Can you explain what would happen in both scenarios: if the conflict remains contained, or if it escalates into a more serious threat to global energy supplies?
The impact of the Iran conflict on Malaysia, and specifically on palm oil and other shares, hinges entirely on whether the situation remains contained or escalates into a serious threat to global energy supplies. Based on current analysis, we can explore two distinct scenarios.
For a quick overview, here is a comparison of the two scenarios:
📈 Scenario 1: The Conflict Remains Contained
In this best-case scenario, the military confrontation is short-lived and does not lead to a sustained closure of the Strait of Hormuz. Shipping might be paused briefly but resumes in a controlled manner .
Impact on Global Economy and Markets: This scenario would act as a mild drag on global growth. Oil prices would inject a temporary "risk premium" but would not cause a lasting shock. Historical research suggests that a 10% increase in oil prices reduces global growth by about 0.4 percentage points, an effect that typically fades within two years . While the initial shock causes volatility, financial markets would stabilise once logistics normalise .
Impact on Palm Oil and Other Malaysian Shares: For Malaysian shares, this scenario aligns closely with the "short, sharp spike" pattern seen in the 1990-91 Gulf War.
Palm oil prices would remain elevated but would not experience a runaway rally. As a Chinese analysis notes, the market's focus would eventually return to the "global vegetable oil supply glut," which would cap price gains .
Oil & Gas (O&G) shares would see their temporary boost fade as the geopolitical premium in crude oil prices dissipates .
Aviation and logistics shares would recover quickly as fuel costs stabilise and shipping routes return to normal .
Banking shares, which are sensitive to the overall economy, would likely rebound as recession fears prove unfounded .
💥 Scenario 2: A Serious Threat to Global Energy Supplies
This is the worst-case scenario, where the conflict escalates into a prolonged disruption of the Strait of Hormuz, potentially involving damage to regional energy infrastructure like the Qatari LNG facilities . This would trigger a global economic shock.
Impact on Global Economy and Markets: This scenario would significantly increase the risk of a global recession . A sustained, severe supply shock would lead to surging inflation worldwide, forcing central banks into a difficult position between controlling prices and supporting collapsing demand . Energy-intensive industries would face margin compression, and consumer spending would fall as real incomes drop . A one-month closure of the Strait alone could draw an estimated 400 million barrels from global inventories, quickly erasing any surplus and pushing prices much higher .
Impact on Palm Oil and Other Malaysian Shares: The impact on shares would be more profound and long-lasting, resembling the major price surge seen during the Arab Spring in 2011.
Palm oil shares would be propelled by a "perfect storm." First, the direct link: crude oil at $150 would make palm oil-based biodiesel extremely attractive. Second, and more critically, the logistical disruption would be severe . The Strait of Hormuz is a transit route for vegetable oils destined for the Middle East (e.g., about 500,000 tonnes annually for Pakistan and Afghanistan) . This trade flow would halt. Furthermore, the rerouting of all container ships around the Cape of Good Hope, as Maersk and MSC have already done, would cause global freight costs to skyrocket and create extensive delays . These "logistical premiums" would become a permanent part of the price for as long as the disruption lasts .
O&G shares would initially skyrocket. However, if high energy prices tip the world into a deep recession, demand destruction for oil could eventually cause even these shares to fall .
Aviation shares would be among the hardest hit. A prolonged period of jet fuel at over $125 per barrel would threaten the viability of many airlines, potentially leading to consolidations or even bankruptcies .
Logistics and manufacturing shares across the board would suffer due to broken supply chains, higher input costs, and falling global demand .
The key takeaway is that while the initial shock benefits commodity-linked sectors like palm oil and O&G, a full-blown energy crisis ultimately creates so much economic pain that it drags down the entire market, including the initial winners.
To summarise, the current situation is highly fluid. The market is hoping for Scenario 1 but is bracing for the possibility of Scenario 2.
Disclaimer: This report is AI generated and based on publicly available information and analytical estimates. It does not constitute financial advice. Investors should conduct their own due diligence and consult with financial advisors before making investment decisions.
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