HISTORICALLY, Malaysia has heavily relied on petroleum-related revenue. In 2009, 41.3% of the federal government’s total revenue came from petroleum (Fulcrum, 2024). However, the government has since diversified its revenue streams, reducing the petroleum related share to 19.6% in 2024 and projecting a further decline to 18.3% in 2025 (Free Malaysia Today, 2024).

Nevertheless, petroleum remains a significant contributor to the national coffer, which is why the ongoing dispute between Petronas and Sarawak’s state-owned Petros over liquified natural gas (LNG) distribution rights has the potential to send shockwaves through the economy. Also, any prolonged conflict could dampen investor confidence in Malaysia’s hydrocarbon sector, with ripple effects potentially spilling over into related industries such as shipping, infrastructure development, and energy-intensive manufacturing.

Moreover, 60.87% of Malaysia’s oil reserves are in Sarawak, and up to 90% of Petronas’ LNG originates from or passed through Sarawak (Daily Express, 2024; Fulcrum, 2024a). This underscores Sarawak’s pivotal role in the nation’s energy supply chain, reinforcing the state’s bargaining power in negotiations over resource management and revenue distribution.

According to Prime Minister, Anwar Ibrahim and the Sarawak Premier, Abang Johari, the dispute has been resolved (The Edge, 2024). They have indicated that an amicable agreement was reached after a series of high-level discussions, aimed at balancing state and federal interests.

In principle, transferring gas distribution rights to Petros could bring substantial benefits for Sarawak—and by extension, the federation—as the state can now earn more petroleum revenue. Not only would it increase Sarawak’s fiscal capacity, but it could also pave the way for greater autonomy in resource management, potentially spurring local development projects in areas such as infrastructure, education, and public health. Under current arrangements, Sarawak only receives 5% in royalties despite its substantial contribution.

In a recent report, Anwar Ibrahim reassured that the dispute between Petronas and Sarawak’s Petros was fully resolved (Malay Mail, 2025). He emphasised the importance of national unity in resource management, highlighting that any agreement should ultimately serve the collective good of Malaysia. He clarified that Petronas retains nationwide authority, while Petros will control gas distribution in Sarawak for domestic purposes.

The Prime Minister assures there is no need to worry about Petros being the sole gas aggregator in Sarawak, as any major project requiring substantial financing would also involve Petronas (Malaysiakini, 2025). This dual involvement could encourage collaboration on large-scale ventures, potentially reducing the risk of costly overlaps and inefficiencies.

For Petronas, returning distribution rights to Sarawak will have a considerable impact. Reports indicate a projected 30% drop in revenue, potentially leading to downsizing and the dismissal of many contract-based employees (Scoop, 2024). Such cuts could affect thousands of workers and disrupt ongoing projects, amplifying concerns about the long-term viability of Petronas’s current business model in East Malaysia.

In response, Petronas announced it is conducting a comprehensive review to evaluate productivity, streamline operations, eliminate inefficiencies, and focus on initiatives that provide measurable value (The Edge, 2024b). This review may include reorganising project portfolios, seeking new partnerships, and revising investment strategies to maintain profitability amid shifting regulatory landscapes.

Although Anwar Ibrahim states Petros will not interfere with Petronas’s existing operations, it remains difficult to gauge the full impact of the resolution between Petronas and Petros without further details. A clearer delineation of roles, responsibilities, and financial commitments is necessary to understand how both entities will collaborate or coexist in shared operational spaces such as LNG terminals and pipelines.

The obvious question is whether Petros can truly assume all operations previously undertaken by Petronas in Sarawak. Petronas is a long-established organisation with decades of expertise and significant resources, including its status as the world’s  third-largest LNG supplier—leverage Petros may lack. Building Petros’s human capital, technical capabilities, and funding mechanisms will be critical to ensuring the state’s expanded role does not undermine overall production efficiency.

Although Petros is expected to focus primarily on domestic operations, Petronas has made substantial investments in developing, maintaining, and improving Sarawak’s petroleum infrastructure. How these responsibilities and costs will now be divided remains unclear. Joint committees or task forces might be established to oversee the transition, but the success of such initiatives depends on transparent coordination and consistent policy direction from both federal and state authorities. While Anwar Ibrahim has stated that Petros’ capability should not be doubted and that Petronas would be involved in projects requiring major financing, the precise arrangement is still ambiguous.

To reiterate, reports indicate that Petronas could lose up to 30% of its revenue due to this shift, potentially leading to serious downsizing. Given this, would Petronas continue financing infrastructure in Sarawak? If Petronas continue investing, how will it recover costs? If it withdraws, can Petros fill the void left by Petronas? Such uncertainties underscore the need for a roadmap that details cost-sharing arrangements, risk mitigation strategies, and clear timelines.

Sarawak is within its right to reclaim its gas distribution, and the federal government should honour this. However, this high-risk, high-reward (for the entire nation, if done right) move must be carefully outlined and executed. Transparent legal frameworks, stakeholder engagement, and phased implementation plans could help cushion the potential economic shocks. Failure by the relevant parties to adapt could have repercussions not only for Sarawak but for the entire country.

Furthermore, the dispute may not remain confined to Sarawak. Sabah and Terengganu have historically had their own petroleum-related disagreements with the federal government. If they, too, demand expanded rights or higher royalties, Malaysia might see a broader realignment of federal–state resource governance, testing Petronas’s adaptability on a national scale. Should they also seek greater autonomy, Petronas could face a nationwide challenge.

In light of these implications, the full details of the Petronas-Petros resolution should be made more transparent to enable meaningful assessment. There remain too many unknowns, and a clear, transparent strategy is essential.

Moving forward, it is vital for the federal government to reassess how natural resources—particularly petroleum—should be regulated to minimise any adverse impact on Petronas while respecting the rights of individual states. A balanced framework must account for both immediate revenue requirements and sustainable growth, ensuring that central and regional interests are harmonised. If executed correctly, returning gas distribution rights to Sarawak could result in more equitable prosperity, but it also carries risks that must be carefully managed to preserve Malaysia’s wider economic stability.



Chia Chu Hang is a Research Assistant at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.