Can palm biodiesel provide quick relief for Malaysia amid Iran war?
Infrastructure costs, supply chains and industry readiness could pose problems for wider adoption of biodiesel blends, analysts say
06/04/2026 (South China Morning Post) - Malaysia is facing renewed pressure to expand the use of palm-based biodiesel as the Iran war drives up fuel costs, but industry and academic observers say high infrastructure costs and slow roll-out make it an unlikely source of quick relief.
That tension has sharpened as the government confronts a swelling fuel subsidy bill and greater exposure to imported supply shocks.
The finance ministry last month said petrol and diesel subsidies could reach 4 billion ringgit (US$903 million) a month with crude oil at about US$100 a barrel. Prime Minister Anwar Ibrahim has noted that nearly half of Malaysia’s oil supply passes through the Strait of Hormuz, which is mostly closed off to maritime traffic due to the Iran war, and that the country imports more oil than it exports.
Diesel in Peninsular Malaysia rose to 6.02 ringgit a litre for the week of April 2 to 8, while the monthly subsidised RON95 quota under the BUDI95 scheme was cut from 300 litres to 200 litres.
The fuel shock has reopened a long-running debate over whether Malaysia should accelerate its stalled B20 biodiesel programme, a fuel blend consisting of 20 per cent biodiesel and 80 per cent petroleum diesel.
Former commodities minister Teresa Kok said late last month that palm methyl ester had become cheaper than pure diesel at prevailing prices and urged the government to revive delayed depot upgrades.
B20 could be about 20 sen (4 US cents) a litre cheaper than B0 pure diesel based on crude palm oil at 4,500 ringgit a tonne and Euro 5 diesel at US$220 a barrel, she added.
In a column published by English daily The Star last week, plantation industry expert Joseph Tek Choon Yee said the latest price surge had pushed Malaysia’s biodiesel debate “back into the daylight”, turning it into a more urgent economic question as imported diesel became costlier.
The issue is being watched beyond Malaysia because palm oil is key to both regional trade and global food supply chains.
US Department of Agriculture data shows Indonesia is expected to produce 46.7 million tonnes of palm oil in the 2025-26 season, while Malaysia is projected to produce 20.2 million tonnes. The UN Food and Agriculture Organization said palm oil prices in March reached their highest level since mid-2022, lifted by higher crude oil prices and lower-than-expected output in Malaysia.
Regional contrast
President Prabowo Subianto said on March 30 that Indonesia would proceed this year with a B50 biodiesel blend, raising the palm oil-based mix from 40 per cent to 50 per cent after earlier shelving the plan over technical and funding concerns.
Reuters said the decision came as the widening conflict involving Iran and broader energy disruptions pushed Indonesia to lean harder on domestic biofuel production.
Malaysia, by contrast, has kept its nationwide biodiesel mandate at B10. A higher B20 blend is already used in Labuan, Langkawi and most of Sarawak, excluding Bintulu, while pilot projects have expanded B20 use to ground transport vehicles at Kuala Lumpur International Airport and to trials at ports including Northport, Johor Port, Port of Tanjung Pelepas and Kuching Port.
Last year former plantation and commodities minister Johari Abdul Ghani said there were no plans to raise the national blend to B20 because the required infrastructure would cost about 643 million ringgit and neither the government nor the industry was prepared to pay for it.
Ahmad Parveez Ghulam Kadir, director general of the Malaysian Palm Oil Board, said Malaysia had “the fundamental policy framework and partial supply capability” to position palm biodiesel as “a supplementary energy buffer”, particularly during periods of elevated crude oil prices.
But he warned wider acceleration would be complex and hinge on infrastructure, supply chains and industry readiness.
Storage tanks, blending facilities and distribution systems would need upgrades, he said, while larger volumes of biodiesel would also require feedstock planning and reliable methanol supply at a time when methanol prices were under pressure.
“[While] Malaysia has the potential to scale up biodiesel blending, a phased, sector-based approach supported by clear policies and stakeholder readiness is more realistic than immediate full-scale acceleration,” he told This Week in Asia.
Helena Varkkey, an associate professor of political ecology at the University of Malaya, said Malaysia was approaching the issue from a different position than Indonesia.
“Indonesia’s strategy for going with a bigger mix is in large part to secure the local market for their palm oil in the face of market restrictions abroad,” she told This Week in Asia.
Malaysia, she said, still had relatively secure export demand from markets such as China, India and Pakistan, while its overall production was much smaller than Indonesia’s.
Hong Leong Investment Bank last week raised its 2026 crude palm oil forecast to 4,350 ringgit a tonne, saying the West Asia conflict was lifting prices through stronger biodiesel economics and tighter near-term supply, state news agency Bernama reported.
RHB Investment Bank, meanwhile, said higher biodiesel mandates in Indonesia and elsewhere could be the biggest repercussions from the conflict and warned that a B20 mandate in Malaysia would roughly double the amount of crude palm oil used by the current B10 programme.
Varkkey said Malaysia was unlikely to get quick relief from a sharper biodiesel push because the fuel shock was moving faster than the country’s infrastructure could respond.
“Since the Iran war requires a quick response, I do not think that the shift to higher biodiesel can happen in a timely manner which can help with the immediate situation,” she said. “Therefore, in my opinion, palm oil would still be more valuable as a food and export commodity for Malaysia.”