Oil is a primary economic asset that has a significant impact on the economic development of modern nations. Malaysia, as a country rich in natural oil and gas resources, has experienced rapid economic growth through oil production since the early discovery of these resources in Sarawak in 1910. Petronas, established in 1974, has played a crucial role in managing Malaysia's oil and gas resources. This study examines the history of oil production in Malaysian states rich in oil resources, such as Sabah, Sarawak, Terengganu, and Kelantan, which have made substantial contributions to the country's economic growth. The concept of federalism in the Malaysian context has played a vital role in securing petroleum resources. Federalism is a political system that grants power to both the central and state governments in managing resources and authority. The Malaysian Constitution clearly delineates the distribution of powers between the central and state governments, including the allocation of powers related to resources such as oil and gas. This provides an advantage to states that possess these resources, such as Terengganu, Kelantan, Sabah, and Sarawak. Furthermore, the Petroleum Development Act of 1974 grants exclusive authority to Petronas for the exploration and exploitation of petroleum in Malaysia. This act also specifies payments to be made to the relevant states as compensation for the rights and powers granted to Petronas. This has contributed to supporting the economic development of oil-producing states. Using qualitative research, this study elucidates the practice of federalism, which plays a crucial role in the management of oil resources in Malaysia by defining the allocation of powers between the central and state governments. This has helped ensure that states rich in oil resources can utilize the proceeds from these resources for better economic development.
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