Malaysia, Thailand Take Different Approaches To Fuel Subsidies Amid Oil Price Volatility
By Siti Radziah Hamzah
KUALA LUMPUR, April 13 (Bernama) -- Malaysia and Thailand have adopted fundamentally different approaches to fuel subsidies, reflecting distinct policy priorities and strategies for managing consumer usage, as both countries strive to balance economic stability with social welfare.
Malaysia’s subsidy system is anchored by the Automatic Pricing Mechanism (APM), where retail fuel prices broadly track global benchmarks, with targeted subsidies applied to selected sectors to manage cost pressures.
Thailand, by contrast, relies on its Oil Fuel Fund to cushion domestic prices, allowing retail prices to move with the market while partially offsetting increases through subsidies drawn from the fund.
Rystad Energy senior analyst Girish Sen said Thailand’s recent diesel price reduction provided short-term logistics cost relief and a marginal improvement in regional competitiveness for freight-intensive export sectors, but should be seen as a temporary relief measure rather than a structural shift.
From April 11, Thailand reduced retail prices for most diesel and gasohol products by up to six baht per litre to ease transport costs and living expenses during the Songkran holiday.
Girish said the divergence in diesel prices between Malaysia and Thailand reflects fundamental differences in subsidy frameworks, noting that Thailand’s universal price cap model operates differently, although it serves as an effective short-term cushion.
“In scenarios of prolonged conflict, the central question for Thailand is not whether further price adjustments will occur, but whether the pace and sequencing of those adjustments can be managed in an orderly manner before the fund’s borrowing capacity is fully exhausted.
“Otherwise, we would witness a forced price increase all at once after the borrowing capacity is fully exhausted,” he told Bernama.
Thailand has been using its Oil Fuel Fund, which is a government-managed mechanism to cushion fuel price volatility, to contain rising diesel prices amid the ongoing United States (US)-Iran conflict, while Malaysia adjusts prices under the APM with targeted subsidies.
Thailand’s Oil Fuel Fund, established in 1973 to stabilise fuel prices, is financed through borrowings capped at 150 billion baht, or about RM18.7 billion, compared with Malaysia’s subsidy system, which is funded through government revenue.
Recently, Thailand’s Energy Ministry said the country has oil supplies sufficient for about 110 days, while the Oil Fuel Fund recorded a deficit of 59.4 billion baht (US$1.85 billion) as of April 10, 2026.
With the fund already in deficit, it is estimated to have only about two months of capacity left if global prices remain at current levels.
Girish said this suggests that while Thailand’s diesel prices may be marginally lower than Malaysia’s at present, the gap is unlikely to be sustained beyond the near term.
“In a prolonged conflict scenario, Malaysia's revenue-based model is more resilient. It is budget-funded, citizen-targeted, and quota-controlled, giving policymakers levers to manage exposure without accumulating structural debt. Thailand's fund, by contrast, carries borrowings to be cleared, and that assumes crude stays within the US$60–US$70 per barrel range,” he said.
Girish noted that the fund has historically relied on borrowing during periods of price volatility, with some episodes showing that debt alone was insufficient to sustain suppressed prices over time.
Malaysia has moved towards a more targeted subsidy framework, allowing cost pressures to be managed more gradually while containing fiscal exposure, he said.
Girish said Malaysia initiated subsidy reforms during a period of relative price stability, while Thailand has largely been forced to absorb shocks before undertaking structural adjustments.
He added that Thailand’s approach means the fund enters each new crisis already encumbered, with progressively less fiscal room to absorb further shocks.
-- BERNAMA