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# The great Malaysian cooking oil arbitrage
- URL: https://www.karlsnotes.com/the-great-malaysian-cooking-oil-arbitrage/
- Published: 2025-07-10T17:46:41.000Z
- Updated: 2025-07-10T17:46:41.000Z
- Author: Karl
- Tags: Business, Politics

Malaysian cooking oil subsidies and EU biofuel mandates have [created](https://www.ft.com/content/e05880c5-244d-4073-97c4-cf2ce01a5b1f?ref=karlsnotes.com) an arbitrage opportunity where fresh oil can be bought cheap, relabelled as 'used', and sold at a profit to aviation fuel producers.

> ...the Straits Times and Climate Home News recently reported on a striking scheme in Melaka, Malaysia, where locals were selling cooking oil that would eventually be used to supply European producers of aviation fuel. 

> The underlying idea of turning a waste product, used cooking oil, into something that can be blended into aviation fuel seems as appealing as [getting the cobras out of Delhi](https://en.wikipedia.org/wiki/Perverse%5Fincentive?ref=karlsnotes.com). Cooking oil starts tasting bad after being used for frying three to five times, but as an input to aviation fuel, used oil is perfectly good. 

> At this point two intriguing forces intersect: European governments are demanding that airlines use more biofuels from sustainable sources — used cooking oil being one — while the Malaysian government subsidises cooking oil. 

> This means that in Malaysia buying fresh oil is cheap and selling used oil is lucrative. If you run a food stall or restaurant in Malaysia, you can buy subsidised fresh oil, fry food a few times, then sell the waste oil at a profit. It’s a nice side-hustle.

> The trouble is, writes financial journalist Matt Levine, “If you don’t run a restaurant, you can buy fresh cooking oil for $0.60, not use it to fry food any times, and then say, ‘Oh, yeah we totally used this oil,’ and sell it to a refiner for $1.” That seems a simpler and more scalable way to proceed. It certainly cuts out the precarious, time-consuming hassle of actually running a restaurant. It is hard to know how much fresh oil is being resold this way, but fraudsters have both the motive and the opportunity. 

> Climate Home news notes that Malaysia collects an astonishing volume of “used” cooking oil: more per person than anywhere else, and two and a half times as much as second-placed Singapore.