EXPLAINED: Stakes of Malaysia’s Sarawak taking control of oil, gas resources
2025.01.16
Kuala Lumpur

Malaysia’s oil-rich Sarawak is set to make history as the country’s first state to gain full control of its oil and gas resources under a legal framework tied to a 1963 agreement by which it joined the Malaya Federation.
Last year, the state on Borneo island appointed Petroleum Sarawak Berhad (Petros) as the sole gas aggregator to oversee the procurement, supply, distribution, and sale of natural gas within its boundaries.
In early September, Sarawak Premier Abang Johari Openg said this push was about more than economics – but also about sovereignty and identity.
Prime Minister Anwar Ibrahim, meanwhile, has worked to fulfill a 2022 election promise of addressing long-standing issues with Malaysia’s Borneo states.
His rise to power that year relied heavily on support from MPs in both Sarawak and neighboring Sabah. Anwar received 148 votes from MPs – including 57 from the Borneo states – giving him support from far more than half of 222 MPs needed to become PM.
The stakes are high for Malaysia’s national oil company, Petronas, and for Sarawak’s energy sector, which holds over 60% of the country’s gas reserves.
Here’s what we know about Sarawak’s move to take control of its oil and gas resources:
What are the details?
Discussions on gas distribution in Sarawak between Petronas and Petros have concluded, officials have said. Still, the government says it is finalizing “key details, parameters and legal implications” of the agreement.
Currently, the arrangement gives Petros control over domestic gas aggregation and distribution in Sabah. While resolved in principle, Anwar said last month that specifics had yet to be publicly disclosed.
Will Petronas’ national role diminish?
Not according to Anwar, who has said that “Petronas will retain its national authority over oil and gas even as Petros takes control of gas distribution in Sarawak.”
Sarawak’s government has agreed to not interfere with Petronas’ role under the Petroleum Development Act 1974, Anwar told reporters on Tuesday. He said, “any gas-related projects in Sarawak, particularly those requiring substantial financing,” would have to involve Petronas.

Potential revenue decline
Sarawak’s control over gas distribution rights will likely affect Petronas’ growth, said Ahmad Mohsein Azman, an analyst at BowerGroupAsia.
“This deal will primarily disrupt the revenue reaped by Petronas on an annual basis,” he said, adding Petronas “might expand its overseas operations” to mitigate losses.
Fiscal strain
Economist Doris Liew warned that this reallocation of resources would strain the government’s revenue streams.
“The Malaysian government’s fiscal consolidation strategy is under threat as diminishing petroleum revenues coincide with increasing operating expenditures,” said Liew of the Institute for Democracy and Economic Affairs.
In 2024, Petronas was expected to contribute an annual dividend of 32 billion ringgit (U.S. $7.11 billion), analysts noted without commenting on expectations for this year.
Sarawak economic gains
James Chin, professor of Asian Studies at the University of Tasmania, estimates that Sarawak could see an additional 10 billion to 20 billion ringgit ($2.22 billion to $4.44 billion) annually from this move. These funds will likely be used for “infrastructure projects, a sovereign wealth fund, and state-run businesses,” he said.
“Sarawak is moving in the right direction, but these developments will take time to materialize.”
‘Reallocation’
Sarawak’s growth could benefit Malaysia through infrastructure spillovers and reduced federal spending in the state, said Geoffrey Williams, director of Williams Business Consultancy.
“This is a reallocation, not a loss,” Williams told BenarNews. “By using oil revenue for development, there is more space to cut development borrowing.”
Government intervention
Petroleum revenues have dropped from 40% of federal income in 2009 to an anticipated 20% in 2024, economist Calvin Cheng said.

While the affected portions of revenue could be minimal, subsidy rationalization where the government takes steps to keep prices low could help offset the shortfall, potentially raising at least 20 billion ringgit ($4.44 billion) this year, argued Cheng, a fellow in the Economics program at the Institute of Strategic and International Studies (ISIS) Malaysia.
Potential ripple effects
Kelantan and Terengganu, states in Peninsular Malaysia, are closely monitoring Sarawak’s move, said Tricia Yeoh, an associate professor at the University of Nottingham Malaysia’s School of Politics and International Relations.
Yeoh noted the two states lack leverage.
“They don’t have MA63 to back them up,” she said, referring to the 1963 Malaysia Agreement, which grants unique constitutional rights to Sarawak and Sabah.
Political calculations
Many observers see Anwar’s concessions to Sarawak as politically motivated.
“Sabah and Sarawak contribute a very high proportion of parliamentary seats,” Yeoh said, adding the negotiations aimed at “maintaining unity within the federal government.”

National cohesion at risk?
Yeoh cautioned that piecemeal demands from individual states could undermine Malaysia’s long-term development.
“Strategic, collective discussions are essential,” she said.
“The current approach feels reactionary and lacks the thoughtful planning needed for a cohesive national strategy.”
For Sarawak’s neighboring state Sabah, analyst Ahmad Mohsein said it could adopt a “wait and see” approach, particularly with its government’s term ending in September.
“With mere months left before the next state election, this may be deferred to the next term as part of election manifestos,” he said.
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