For 52 years no court has said whether Malaysia’s main oil law really applies to Sarawak. Twice the question came close, and both times money settled it instead. A third deal is now close, and it would end three court cases without any judge deciding anything.
A 1974 federal law, the Petroleum Development Act, gave all of Malaysia’s petroleum to Petronas. Petronas is the national oil company, owned by the federal government. An older Sarawak law from 1958 says the state decides who may drill inside its borders. Both are still law. Two tenancy agreements on the same house, signed by different landlords. No judge has ever said which one counts.
In 2018 Sarawak ordered a 5% sales tax on petroleum products, starting the following January. Petronas sued. A Kuching court said the state could charge the tax but said nothing about which law wins. The two sides settled in May 2020. Petronas dropped its appeal and paid RM2 billion for a single year’s tax. The money was sorted. The legal question was not.
The next claim was larger. In February 2024 Sarawak made its own company, Petros, the sole gas aggregator inside the state, using a 2016 state law. An aggregator buys gas from producers and sells it on to factories and power plants, setting the price at both ends. The two governments signed a joint declaration in May 2025 and disagreed about its meaning almost at once. Putrajaya, where the federal government sits, said there were two aggregators. Sarawak said Petros was the only one.
Then both sides went to court
Petronas filed first. On 10 January 2026 it asked the Federal Court which laws govern its work in Sarawak. It put both governments on the other side. The Federal Court is the highest in the country and nobody can appeal what it decides. Sarawak went to the same court a month later. It wants three federal laws switched off inside Sarawak: the 1974 Act and two from 1966 on the seabed and oil mining. The court agreed on 16 March to hear Petronas’s case.
A third case runs in Kuching. Five companies Petronas owns are fighting RM120 million in fines. That is RM15 million for each of eight state licences they never applied for.
Why neither side wants a ruling
If Sarawak loses, the argument is gone for good and it has nothing left to bargain with. If the federal government loses, it starts paying out at once.
Petronas makes three payments. A 5% royalty on what it sells, split with the state. Sarawak’s own 5% sales tax on top, which goes to Sarawak alone. And a dividend, which is the profit left over. That goes to its owner in Putrajaya, the way a shop hands its takings to the family that owns it. The dividend has fallen from RM50 billion in 2022 to RM20 billion this year.
The finance ministry says that RM20 billion is 5% to 6% of everything Putrajaya expects to collect this year. A ruling against the federal government would put it at risk.
Fadillah Yusof, the deputy prime minister, said in December 2025 that the courts would take longer than a deal. He called the likely result “lose-lose for all parties”. A case brought by someone who would rather not fight it is a bargaining chip, not a request for an answer.
How these fights end
In June Sarawak’s premier, Abang Johari Openg, handed Prime Minister Anwar Ibrahim a cheque for RM1.8 billion. Bintulu Port, where Sarawak’s gas is shipped out, changed hands. Sarawak paid Putrajaya, not the other way round. It was buying back a port it had given up years earlier. The price then was a promise from Putrajaya to cover Sarawak’s debts if the state could not pay.
The port is not the petroleum question, but it shows the method: agree a price, hand it over, leave the law alone.
In July The Edge reported that a deal was close. A deal would take the three cases with it.
But a deal binds only the people who sign it, for as long as they choose. It cannot decide which government had the power to make the law, so nothing stops a future premier from opening the argument again. That is what has happened twice, and each round has started from a bigger claim than the last.
