University Malaya’s Lam Choong Wah told FMT that despite being a net producer when the first oil crisis hit the world in 1973, Malaysia was far from energy secure, finding itself at the mercy of a volatile global market.
Lam said his research showed that at the time, Malaysia was producing about 95,000 barrels of oil per day, with domestic consumption in the region of roughly 85,000 barrels.
The crisis—triggered by an embargo imposed by the Organization of Arab Petroleum Exporting Countries (OPEC) amid a war between Israel and a coalition of Arab states—caused oil prices to quadruple, plunging the world deep into recession.
Though not directly targeted, the knock-on effects of the embargo exposed vulnerabilities in Malaysia’s domestic supply system, said Lam.
He said the government of the day recognised the potential problems the global energy crisis posed for Malaysia, but was also keenly aware of the upsides it presented.
“Given our own significant resources of petroleum and gas, as revealed by explorations now under way, Malaysia has the opportunity to turn the current energy crisis into a unique opportunity for the rapid development of our own petroleum-based industries,” Lam quoted then deputy prime minister Hussein Onn as saying at the time.
Speaking in Parliament, Hussein said the government, then led by Abdul Razak Hussein, was “actively cooperating with the private sector to seize this opportunity.”
Yet, according to Lam, that optimistic outlook was to be tested barely a year later.
He said that by July 1974, Malaysia was already facing a “serious shortage” of diesel and kerosene.
At the time, Malaysia exported much of its own crude oil while importing foreign supplies, particularly from the Middle East, which were refined in Singapore to meet domestic needs.
By 1975, Lam said nearly 80% of locally produced oil was exported, a policy driven by the higher value of Malaysian crude, which fetched better prices internationally due to its lower sulphur content.
Although economically rational, he said, Malaysia’s export-heavy approach left the domestic system exposed to supply disruptions and refining constraints.
Nevertheless, Lam told FMT the crisis also prompted a more coordinated policy response, centred on stronger national control and management of petroleum resources.
The strategic pivot
Lam said Malaysia’s reaction to the 1973 oil shock was not confined to simply ramping up production, but involved a strategic pivot that led to the establishment of Petroliam Nasional Bhd (Petronas) and long-term energy planning.
He said the oil crisis “fundamentally changed the course” of Malaysia’s policy direction, driving efforts to expand exploration, strengthen control over resources and build supporting industries.
This was formalised through the National Petroleum Policy 1975, which set out clear objectives to protect national interests, strengthen state control over the oil industry, ensure sufficient domestic supply, develop downstream industries and ensure Petronas’ active participation.
A key component of this was the commissioning of a comprehensive master plan from Japanese firm C. Itoh, which, Lam said, was designed to ensure supply and production while meeting national demand.
The plan recommended a broader energy strategy that went beyond upstream oil production, including greater use of natural gas and the development of refineries, fertiliser plants and petrochemical industries.
It also marked a decisive shift towards a more coordinated, state-led approach to managing the sector, reducing reliance on foreign operators and strengthening national control over resources.
Lam added that this push for greater control and supply security also drove Malaysia to expand its offshore reach as efforts were made to access new hydrocarbon reserves.
Ultimately, Malaysia’s response to the 1973 oil crisis went far beyond immediate supply concerns, laying the foundations for a more resilient energy system.
Despite having oil, the country lacked the infrastructure, refining capacity and institutional depth to turn resource wealth into true security.
The creation of Petronas in 1974 and the drawing up of the National Petroleum Policy the following year marked a decisive shift, establishing an integrated national energy strategy that continues to shape the sector and insulate the country today.