Russia’s President Vladmir Putin and Malaysia’s Prime Minister Anwar Ibrahim declared at the recent ASEAN-Russia Commemorative Summit in Kazan that Russia has assured Malaysia that it will maintain a long-term supply of petrol, oil, and gas to the country.
However, Malaysia is itself an exporter of oil and gas, and is expected to remain a net exporter of gas until 2035. While it is true that it is a net importer of oil, it has always relied on the Saudis and other suppliers in the Middle East, including Iran, for supplies. For 30 years, U.S. sanctions have not mattered much to Petronas’ business in Iran. In recent years, Malaysia has even ignored threats from the United States by refusing to intervene in the sale of sanctioned Iranian oil to China via ship-to-ship transfers in and around Malaysian waters. Iran has reciprocated by granting safe passage to tankers carrying crude bound or Malaysia at the height of its blockade of the Strait of Hormuz.
Given its prominence and half-century history of activity in international markets, Petronas has always managed to source supplies of crude oil and gas to cover short term deficits to meet local or export needs. There has never been a need to seek assurances of supply from anyone, and that makes the Anwar-Putin declaration intriguing to say the least. The answer, I want to suggest, may lie in Putin’s need for U.S. dollars amid the Ukraine war sanctions imposed on Russia, which have adversely affected Russia’s ability to sell oil and gas on the international market.
The Putin-Anwar declaration, then, has the appearance of an ordinary currency swap, in this case an exchange of rubles for U.S. dollars, designed such that Malaysia gets Russian crude, gas, and petrol instead of rubles. While currency swaps are usually structured like loans, where the parties exchange currencies at the beginning of the transaction and then reverse the transaction at the expiry of the contract, swaps are sometimes structured such that there is no expiry, and the parties simply keep exchanging the currencies concerned on an ongoing basis. In this case, the Russian crude will be exchanged for U.S. dollars on an ongoing basis.
This arrangement differs from ordinary contracts to buy and sell commodities in that it would function regardless of Malaysia’s demand for the product. It is intended solely to provide Putin with a steady flow of U.S. dollars.
Accepting Malaysian ringgit for Russian oil is not a viable option, for while Anwar has often declared a desire to trade in domestic ASEAN currencies and lessen reliance on U.S. dollars, the Malaysian ringgit, is nor freely tradable, due to currency controls introduced in 1998. In recent years, its declining value has caused grave concerns in Malaysia. It is not practical to expect any foreign reserve or central bank to want to hold large amounts of ringgit.
That the U.S. dollar remains for Malaysia the only viable medium of trade is evident in the fact that Petronas buys and sells oil and gas in U.S. dollars, which are believed to be banked in and distributed out of Singapore, given Singapore’s mature and extensive foreign currency banking channels. It is a fact that Malaysian businessmen have, for reasons of tax, secrecy, and convenience, preferred Singapore’s banks over those in Malaysia for their banking needs, for more than half a century.
It is likely therefore that it is Malaysia’s access to Singapore and other international banking that networks that Putin desires, for the U.S. currency it can convey to him via a Malaysian oil and gas deal.
The Putin-Anwar declaration may then constitute a de facto oil, gas, and petrol for U.S. dollar swap, independent of Malaysia’s own demand. Malaysia will of course have to sell the Russian crude in order to raise the U.S. dollars required to meet its contractual obligations to Russia but Petronas has well established networks that it can rely on for that purpose. For example, Petronas has trade and storage contracts with Vitol, which reports suggest were recently utilized to supply diesel to the Philippines, and later, to Australia. This was somewhat controversial, given that Malaysia was itself short of diesel at the time.
In this case, there is nothing to prevent Russia from delivering the crude to any other destination. Malaysian crude purchased from Russia could, for example, be delivered to the Jamnagar Refinery in Gujarat, India, for refining and sale to traders in Singapore. Such a move would be to India’s advantage for it would avoid U.S. sanctions on the trading in Russian oil that have caused some friction between the two countries. The swap contract permutations and combinations are many, and ensure that Malaysia will not likely find itself short of options for selling Russian crude, and delivering U.S. dollars to Putin.
Notably, the Russia-Malaysia oil and U.S. dollar swap was preceded by a personal invitation from Putin to Malaysia’s King Sultan Ibrahim of Johor, to visit Russia and attend the Victory Day Rally in May. The king was also gifted an AURUS Senat, the Russian-made luxury vehicle that serves as Putin’s official car, and is not normally sold outside Russia. The king’s passion for luxury vehicles is well known so the gift of the AURUS can be seen as adding a highly personal touch to the state visit, and fits a pattern of Putin using these types of gifts to build and cement ties.
Confirming the personal dimension is the fact that the AURUS will become part of the Royal Collection, and not handed to Malaysia’s Treasury, as is the usual practice with gifts received during official visits. Prior to his ascension in 2024. Sultan Ibrahim laid out, in an interview with The Straits Times in Singapore, the reasons why Malaysia’s Petroleum Development Act 1974 ought to be amended so that Petronas is controlled by and reports to the king and not the prime minister.
The South China Morning Post speculated prior to Sultan Ibrahim’s visit to Russia that the visit was expected to “smooth” the path for an oil deal. The events that followed suggest that this speculation was not unfounded, and also suggest that Sultan Ibrahim is, at least unofficially, steering Petronas’ trading activities. The Russia-Malaysia crude-for-U.S.-dollar swap can therefore be expected to be a long term arrangement which will survive any change of leadership in Malaysia.