Hormuz under fire, Washington's oil order and Malaysia's exposure

1. What happened

On Thursday, 22 October, Iran's Islamic Revolutionary Guard Corps (IRGC) Navy said four vessels engaged in what it called illegal oil transfers in the northern Gulf were hit and caught fire, and that three more vessels struck mines west of the Strait of Hormuz. Iranian state television put the total at seven tankers. If accurate, it would be the largest number of vessels damaged in the waterway on a single day since the US–Israeli war with Iran began on 28 February.

The IRGC also warned that it could strike US bases in the region if Washington continued helping tankers transit the strait. A US Central Command spokesperson, speaking anonymously to Al Jazeera, called Iran's mine claims incorrect and said US forces had cleared the international shipping lanes of mines. The spokesperson said Iran was using missiles and drones and that the strait remained open, with 95% of vessels getting through. US officials also described the Iranian announcement as an attempt to push up oil prices ahead of the US midterm elections.

Markets did not wait for the facts to settle. Brent crude futures closed 4% higher at US$113.17 a barrel and WTI rose 2.4% to US$99.47. Traders were also reacting to a New York Times report that US and Israeli planners had prepared options for renewed strikes on Iran after the November elections, and to the US order for non-emergency government staff to leave Saudi Arabia.

Hours later, President Donald Trump signed a determination under Section 303 of the Defense Production Act (DPA). It declares domestic petroleum production, refining, pipelines, storage and marine terminals essential to national defence and waives the usual procedural requirements. The Department of Energy said it plans to provide up to US$150 million in DPA Title III funding for refinery capacity, with project selection still under way.

2. Verified, attributed and disputed

The disagreement matters for more than who is right. Insurers and charterers price risk from incident reports, and when the two governments directly involved give incompatible accounts, risk premiums tend to rise anyway. This piece does not try to settle who struck which vessel. That question remains open until ship names, flag-state reports or independent imagery appear.

3. Context: how the Hormuz shipping system now works

Before the war, about one-fifth of the world's oil supply passed through Hormuz. According to Lloyd's List Intelligence, as reported by AP, Gulf exports now move largely through a US-protected "dark shuttle" lane near the Omani coast. Tankers cross at night with location transponders switched off, and the oil is transferred ship to ship in the Gulf of Oman before onward shipment, mainly to Asia. Lloyd's says this has brought Gulf oil shipments back to roughly pre-war levels. The cost is high: spot charter rates have reportedly reached hundreds of thousands of dollars a day, and the transfers can take several days.

That system is resilient, but it is expensive and exposed. Each reported attack adds to freight, insurance and delay costs. Asian buyers, including those in Southeast Asia, take the largest share of the oil that moves this way.

The DPA order should be read in proportion. US$150 million is small compared with the scale of global refining. Its main effects are a signal that Washington will treat fuel supply as a security issue, and possible faster permitting for US projects. It does not add barrels this quarter. For Asian prices, Hormuz risk and spare capacity in the Gulf matter far more.

4. Why this matters for Malaysia

Fuel subsidies and the fiscal balance

Malaysia remains a net exporter of oil and gas, and higher crude prices generally lift petroleum-related government revenue, including Petronas dividends and petroleum income tax. At the same time, retail fuel subsidies become more expensive as international prices rise. This applies especially to the RON95 programme and to any remaining support for diesel, LPG and electricity generation fuels. Whether a high-price episode helps or hurts the budget depends on how long prices stay high, on Petronas's realised prices and volumes, and on how far subsidy targeting has gone. STTInsights has not modelled the net figure here. It should be estimated against the Finance Ministry's own oil-price assumptions rather than assumed.

Shipping, insurance and trade costs

Malaysia's ports and manufacturers run on imported refined products, petrochemical feedstocks and container shipping priced in US dollars. Higher bunker fuel and war-risk insurance costs pass through to freight rates, and eventually to import prices for food and intermediate goods. Malaysian-flagged or Malaysian-managed tankers trading in the Gulf face direct crew-safety and insurance exposure.

The ringgit and inflation

Oil shocks have pulled the ringgit in both directions in the past. Better terms of trade for an energy exporter support the currency, but general risk aversion strengthens the US dollar against Asian currencies. A sustained rise in oil prices would also add to imported inflation and complicate Bank Negara Malaysia's rate decisions. These are channels to watch, not forecasts.

Petronas and LNG

Petronas earns on crude and LNG, and Asian LNG prices tend to rise with Middle East supply risk. Higher prices could help Petronas's revenue. Its overseas operations and LNG buyers, however, face the same freight and insurance pressures.

The haze overlay

The energy shock arrives during Indonesia's most intense fire season in 11 years. Copernicus data show fire CO2 emissions of 14.44 million tonnes for 15–21 October. That is down from 22.22 million the week before but still high, and the rains are delayed until November. For Malaysian households and businesses, haze-related health costs, school disruption and aviation delays add to fuel and freight pressure. Policymakers will have to handle both at once.

5. Scenarios for the next four to six weeks

These are scenario descriptions, not probability estimates.

1. Contained friction. Attacks continue at about October's rate, but the US-escorted lane keeps flows near pre-war levels. Brent stays volatile around today's range. For Malaysia: elevated subsidy costs, partly offset by revenue, and modest freight pass-through.
2. Escalation after the US elections. Reported US–Israeli strike plans go ahead and Iran widens its attacks to US bases or Gulf infrastructure, as the IRGC has threatened. Freight and insurance costs jump and Brent could move sharply higher. For Malaysia: subsidy pressure, a weaker ringgit on risk aversion, and pressure on imported inflation, with some windfall revenue.
3. De-escalation. Diplomatic contacts reduce attacks and the risk premium fades. For Malaysia: relief on subsidies and freight. Oil-linked revenue would fall back to budget assumptions.

6. Indicators to watch

• Independent confirmation of vessel names, flags and damage from flag states, owners or UKMTO notices
• Lloyd's List and other figures on Hormuz transits and charter rates
• Joint War Committee listings and war-risk premiums for Gulf voyages
• Brent's daily close against the oil price assumed in Malaysia's budget
• Weekly Malaysian retail fuel price announcements and any change to subsidy targeting
• USD/MYR and Bank Negara Malaysia statements on imported inflation
• Petronas quarterly results and LNG price disclosures
• US Department of Energy DPA project selections and their timelines
• Indonesia's Sipongi hotspot counts and Malaysian API readings during the delayed rains

7. Open questions

Which vessels, if any, were hit, and by whom? Were mines involved, or missiles and drones, as the US says? How much of Southeast Asia's crude and product imports travel through the shuttle lane? What oil price does Malaysia's 2027 budget assume, and how sensitive is the subsidy bill to each extra US$10 a barrel? These questions stay open until the records answer them.

Sources

1. Al Jazeera, "Iran says seven ships hit in Hormuz Strait, warns US of wider response", 22 Oct 2026. aljazeera.com
2. Reuters via Arab News, "Iran's Navy says seven vessels hit, warns US of wider response", 22 Oct 2026. arabnews.com
3. Associated Press via NBC News, "Iran says 7 oil tankers attacked in the Strait of Hormuz…", 22 Oct 2026. nbcnews.com
4. CNBC, "Brent crude tops $113, highest level since May…", 22 Oct 2026. cnbc.com
5. The White House, Presidential Determination under Section 303 of the Defense Production Act on Domestic Petroleum Production, Refining, and Logistics Capacity, 22 Oct 2026. whitehouse.gov
6. US Department of Energy, "Energy Department to Use Defense Production Act Funding…", 22 Oct 2026. energy.gov
7. CNBC / Reuters, "Trump invokes Cold War era Defense Production Act for oil production, refining", 22 Oct 2026. cnbc.com
8. Reuters via The Edge Malaysia, "Indonesia's fire hotspots ease but rain still not enough, official says", 22 Oct 2026. theedgemalaysia.com
9. The Straits Times, "Transboundary haze law possible but enforcement a challenge, Malaysia Parliament told", 21 Oct 2026. straitstimes.com

Evidence status reflects reporting available at the research cutoff. Fiscal and currency effects are described as channels and have not been modelled. Corrections will be dated and recorded.

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