KUALA LUMPUR: A proposed law by the United States (US) to sanction "material supporters" of Hamas and the Palestinian Islamic Jihad (PIJ) could have either limited, or devastating impact on the country's financial markets and economy, depending on the seriousness of the US in enforcing the bill, according to political analysts and economists.
The Hamas International Financing Prevention Act was passed by the US House of Representatives last week and is awaiting voting by the Senate.
"In deciding whether to rigorously enforce the law against any "offending" foreign state, the US is likely to also weigh its self-interest benefits in maintaining an overall relatively cordial relationship with the country in question, versus that country's level of engagement with Hamas, ranging from mere vocal professed solidarity with Hamas, to providing material assistance, military or otherwise to Hamas," Singapore Institute of International Affairs senior fellow Dr Oh Ei Sun.
US goods and services trade with Malaysia totalled an estimated US$78.3 billion in 2022.
He added that Malaysia is most fortunate in that it is viewed relatively crucially by the American side, with its strategic electronics industry and its strategic geographic location, and so far the affinity with Hamas appears to be mostly rhetorical in nature.
"So in the near future the U.S. is unlikely to take any serious actions against Malaysia, barring further escalation of material support for Hamas," Oh, who is also principal adviser at Pacific Research Centre of Malaysia, said.
Concurring with Oh, Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said, Malaysia's stance of not recognising any country's unilateral action or sanctions is nothing new, as Malaysia only recognizes the UN's sanction or decisions.
He said, Prime Minister Datuk Seri Anwar Ibrahim's recent iteration that Malaysia will not recognise US' proposed sanctions therefore highlights the consistency of Malaysia's stance towards such unilateral moves and was anticipated by the US.
"I don't think it will (US sanctions) will happen because even though Malaysia recognises Hamas, we never directly gave any financial assistance to Hamas, as all this while all financial aid was given to the population of Palestine. Therefore it is highly unlikely Malaysia will be put in the list as this will affect the longstanding business cooperation and collaboration between the two countries, not forgetting that US are among the main trading partner of Malaysia," Razman said.
Material support
According to Universiti Tunku Abdul Rahman economics professor Wong Chin-Yoong, the "material support" the US is looking at sanctioning is support for weapons and equipment to the Hamas and PIJ, which the US has restricted for export.
"So, my take is I don't see the possibility where Malaysia is supplying ammunition to Hamas. We're not a weapon producing nation. Moral and humanitarian support to Palestine is not the target. Otherwise the US needs to sanction the United Nations (UN)," he said.
Secondly, the act aims at individuals, not nations, by perhaps freezing the access to their foreign assets.
"Overall, I don't think the act will have any impact on Malaysia.It depends on the assistance we've provided, which I have no idea. Giving calls to the Hamas leaders and moral support, or even voting for stopping Israe's strike in the UN would not put Malaysia on the list," Wong said, ading that it would be different story if we've provided funding to the group.
He believes however that sanctions planned are more towards individuals rather than countries because if it is the latter, then the US would need to sanction countries such as Qatar and China, which would not serve the interests of the US right now.
"The US needs to keep other Middle Eastern countries from directly involving in the conflict, and they're trying to cool the (heated) relationship with China in the coming APEC meeting."
"So it's very unlikely that Malaysia will get sanctioned. If it happens, restricting Bank Negara Malaysia's access to the foreign reserves can be one of the tools, which will have devastating impact on our financial market and the economy," Wong said.
International Islamic University Malaysia Assistant Professor Department of Political Science Dr. Lau Zhe Wei on the other hand believes it is too early to predict whether Malaysia will be on the US' sanctions list.
"But, if it happens. Yes, Malaysia is going to face a lot of economic trouble. Until one day, we are prepared to cut all ties or most of the ties with the US."
"So all this shift is possible, only that you have to bite the bullet in a very short moment. And in the short term, you're going to suffer a lot," he said.
Strange bedfellows
One economist said not complying with US sanctions could open the country up to secondary sanctions and see it pivot to other major powers such as China and Russia.
UCSI University Malaysia Assistant Professor - Finance Dr. Liew Chee Yoong said if Malaysia does not comply with US sanctions, it could face possible secondary sanctions, affecting trade and investment flows between the two countries.
"Non-recognition of US sanctions by the Malaysian government could potentially lead to diplomatic tensions between the United States and Malaysia. If tensions escalate, there could be a cooling off in diplomatic and military cooperation, affecting the broader security dynamics in Southeast Asia."
"Such tensions may force Malaysia to build stronger political and economic ties with other major powers such as China, India and Russia, hence influencing the regional balance of power," he said.
The broader impact on Southeast Asia could manifest in increased polarisation, with countries potentially having to choose sides in the current US-China geo-political tension, which may complicate regional peace, security and co-operation.
Centre for Market Education (CME) chief executive officer Dr Carmelo Ferlito believes that while Malaysia's non-recognition of possible sanctions by the US will not have any tangible effect, it will add more tension to the relationship with the US, like the intense conversation about de-dollarisation.
"I tend to have doubts about the long-term benefits for Malaysia deriving from worsening the relationship with the US. But even before the recent escalation in the Middle East, the current government has made clear of being more interested in China than the US. And this is one of the reasons behind the ringgit's weakness."
"In that case, Malaysia needs to be very careful. The regional scenario about foreign direct investment (FDIs) is already extremely competitive and Malaysia is losing ground. To go for geopolitical isolation, considering how Malaysia depends on international trade, would not be very wise," he told Business Times.
Hamas International Financing Prevention Act
The United States' Hamas International Financing Prevention Act was first introduced in January, as a way to sanction foreign supporters of Hamas and the Palestinian Islamic Jihad groups.
On November 2, 2023, the bill was paased at the House of Representatives 343 to 46. The bill is now to be tabled at the US Senate before it is passed and enforced.
Hamas is an Islamist Palestinian organisation founded in 1987 during the First Intifada (Palestinian uprising against Israeli occupation).
Hamas is the de facto governing authority in the Gaza Strip, a Palestinian territory, and it is known for its resistance against Israel.
The Hamas International Financing Prevention Act, aims to enhance the pressure on Hamas by targeting its financial networks and supporters around the world.
The Hamas International Financing Prevention Act encompasses several key provisions.
Firstly, it empowers the U.S. government to apply sanctions against individuals and entities that offer financial support to Hamas, which includes freezing assets and imposing restrictions on financial transactions.
Secondly, it mandates financial institutions to report any transactions that may be linked to Hamas to the US Department of the Treasury, facilitating improved tracking and monitoring of suspicious financial activities.
Furthermore, the legislation encourages the United States to collaborate closely with its international allies to ensure the consistent enforcement of sanctions and restrictions on Hamas financing worldwide.
Lastly, the Act emphasises the significance of transparency and accountability in the allocation of foreign aid to the Palestinian territories, with the aim of preventing funds from inadvertently supporting Hamas or other terrorist organisations.