Malaysia’s Diesel Crisis

Malaysia has come to a near halt due to a severe shortage of subsidized diesel caused by hoarding and smuggling, as currently reported here, with information available on other blogs here and here. About one-quarter of the country’s 2,641 gasoline stations ran out of diesel yesterday, leaving trucks, buses and cars stranded in long queues or parked idle. Truck drivers threaten to strike, kids can’t make it to school, and industry is slowly grinding to a halt.

The origins of the crisis? Malaysia follows a dual pricing scheme for selling diesel. Industry pays 44 U.S. cents per liter while gas stations are subsidized and charge just 23 U.S. cents per liter. The result? A black market—gasoline station owners clandestinely sell subsidized diesel to middlemen who in turn sell it to industries, or to Thailand where the going rate is twice Malaysia’s subsidized rate. The government has ignored the crisis for years, and the crisis now has arisen from mandated petroleum quotas where gas stations only get a certain amount of fuel per month. That would have been fine were it not for the massive smuggling that siphoned off hundreds of millions of liters

The government ordered the release of the June quota to gasoline stations yesterday, but only as a temporary measure. Until the authorities crack down on the fossil fuel black market, the problem will persist and damage Malaysia’s economy even more. This is not over.