KUALA LUMPUR: Soaring energy prices amid Middle East tensions could strain Malaysia's public finances, but rising oil revenues are seen as a buffer, economists have said.

Moody's Ratings said in a note on Wednesday that sustained high energy prices could pressure Malaysia's public finances, but the shift toward more targeted petrol and diesel subsidies over the past two years should help limit potential increases in the subsidy bill.

The rating agency also noted that higher petroleum-related revenues provide an additional buffer, with state-owned oil and gas firm Petroliam Nasional Berhad (Petronas) expected to benefit from strong upstream earnings.

It noted that Petronas has budgeted 20 billion ringgit (5.09 billion U.S. dollars) in dividends for 2026, though payouts could increase if profits exceed expectations.

Supporting this outlook, Nomura has in its recent report maintained Malaysia's 2026 fiscal deficit forecast at 3.5 percent of GDP, in line with government projections, citing higher subsidy and social assistance spending offset by lower-than-budgeted development expenditures.

While higher oil prices increase subsidy spending, economists believe Malaysian government revenues may also rise.

Meanwhile, MBSB Research highlighted that crude oil prices hovering between 90 dollars and 100 dollars per barrel could spur upstream investment, benefiting Malaysia's oil and gas sector.

The research house said in a note on Thursday that it believes these players are well-positioned to capture increased demand across offshore engineering, maintenance services and floating production operations as upstream investment activity gains momentum.