The Malaysian government has indicated that it may allow fuel prices to rise as high oil prices contribute to the fiscal deficit.
 
Malaysia's Prime Minister Abdulla Ahmad Badawi told the Reuters news agency "we have not decided whether we want to raise the price. We are observing the situation right now."

Nor Mohamed Yakcop, the second finance minister, told AFX News that fuel subsidy programmes will cost the government some 25 billion ringgit (US$ 7.2 billion) next year.

Meanwhile, the head of Malaysia's state energy company Petronas has said that the country's massive fuel subsidies are not sustainable in the long run, according to a report by the Malaysian National News Agency (Bernama). Surging oil prices have made the subsidization policy all the more inefficient in correcting the economic imbalances it is meant to address, said Mr. Hassan Marican, the president and CEO of Petronas.
 
The situation has become increasingly problematic for Petronas as world petroleum prices surged to over US$ 80 a barrel. Petronas has already spent some 15 billion Malaysian ringgit (over US$ 4 billion) subsidizing gas this year, and the figure could reach 35 billion ringgit (approx US$ 10 billion) by the end of the year.
 
Mr. Marican said that subsidized diesel and gasoline in Malaysia was benefiting the rich in the country, who could afford big cars and air conditioners.
 
In reaction to high energy prices, governments around the world have been making the politically difficult move of reforming fuel subsidy programs. These programs often keep the price of fuel below market value, with the government making up the difference.
 
Higher fuel prices will likely result in a public backlash in Malaysia. Last year Malaysia raised its fuel prices to their highest level ever, sparking riots in Kuala Lumpur.

For more information see:

Malaysia may review fuel subsidies after oil spike, 13 September 2007, Reuters
http://uk.reuters.com/article/oilRpt/idUKKLR23407520070913
 
Malaysia to maintain key interest rate, fuel prices for now, 9 September 2007, Forbes
http://www.forbes.com/markets/feeds/afx/2007/09/09/afx4096614.html

Fuel Subsidies Unsustainable, Says Hassan Marican, 18 September 2007, Bernama http://www.bernama.com/bernama/v3/news_business.php?id=285720