A War We Don't Fight, But We Pay For
Indonesia is not militarily engaged in Middle Eastern warfare. No troops are deployed, no weapons are mobilised. Yet today’s global irony demonstrates that war need not involve direct military participation to inflict economic damage. The escalating conflict between the United States and Iran threatens to impose economic costs on Indonesian society through rising energy prices, inflationary pressure, and a swelling state budget deficit.
In an interconnected global economy, a distant war can feel very near.
The US–Iran conflict strikes at the most sensitive point of global economic systems: energy. The Strait of Hormuz, a narrow 39-kilometre passage, represents a critical chokepoint. Approximately 18–20 million barrels of oil—nearly 20 per cent of global petroleum consumption—transit this strait daily. Even minor disruptions trigger market panic.
Energy markets do not wait for supply to actually cease. Under geopolitical risk premium theory, oil prices reflect expected risks rather than current reality alone. This is why every conflict escalation immediately triggers price surges. International analysts estimate that if the conflict persists and distribution channels are disrupted, oil prices could reach 100 US dollars per barrel, potentially soaring to 120–130 dollars in worst-case scenarios.
History offers crucial lessons. During the 1979 oil crisis, global production fell by only four per cent, yet world oil prices doubled in a short timeframe. This illustrates that fear is often more expensive than scarcity itself.
From Global Oil Prices to Indonesia’s Budget
For Indonesia, surging global oil prices is not merely a distant issue but carries direct fiscal implications. Indonesia remains a net oil importer, consuming approximately 1.6 million barrels daily whilst domestic production stands at 600–700 thousand barrels daily.
This deficit makes Indonesia extremely sensitive to oil price increases. In budgetary practice, each 10 dollar per barrel rise in international crude oil prices is estimated to add 25–30 trillion rupiah annually to energy subsidies and compensation costs, depending on exchange rates and consumption volumes.
If oil prices remain above 100 dollars per barrel for extended periods, pressure on the state budget could intensify, forcing the government to reallocate expenditure, potentially sacrificing productive spending or widening the fiscal deficit.
Energy Inflation and Erosion of Purchasing Power
The problem extends beyond the budget. Energy is a primary input for nearly all economic activity. Rising fuel prices drive cost-push inflation: transport costs increase, production expenses climb, and basic commodity prices rise correspondingly.
Historical data shows that energy price spikes are typically followed by increased domestic inflation within months. Energy inflation then spreads to core inflation. For low-income households, the impact is particularly severe since spending on transport and food represents a much larger proportion of their budgets.
In this context, Middle Eastern conflict functions as an “invisible tax” that Indonesian society must pay, despite never approving or deciding it domestically.
Global Logistics and Imported Inflation
Economic risks extend beyond oil prices to potential disruptions in international shipping routes. Should conflict escalation involve proxy actors in the Red Sea region, global logistics costs would rise sharply.
Experience with international shipping disruptions demonstrates that transport costs can surge 20–40 per cent, accompanied by rising insurance premiums and longer transit times. For Indonesia, this means imported inflation through higher prices for wheat, soy, fertiliser, and industrial raw materials.
When logistics costs rise, domestic inflation becomes not merely a matter of domestic supply and demand but rather a transmission of global conflict.
Pressure on the Rupiah and Financial Markets
Geopolitical turmoil almost invariably triggers flight-to-safety shifts in global financial markets. Investors migrate towards US dollars and developed-nation government bonds. Consequently, emerging-market currencies, including the rupiah, face depreciation pressures.
Rupiah weakness amplifies import costs for energy and food, intensifying inflation pressures. Simultaneously, financial market volatility can drive up yields on government securities, raising state budget financing costs. In extreme scenarios, this dual pressure can constrict both fiscal and monetary policy space.
Systemic Risk Not to Be Underestimated
Some may argue that Indonesia’s economy is now more resilient than in the past. This assertion is not entirely incorrect, but neither should it breed complacency. Systemic risk theory teaches that large shocks occurring simultaneously—from geopolitical conflict, energy price surges, and logistics disruptions—can reinforce each other and create non-linear impacts.
The involvement of major powers such as Russia and China in US–Iran conflict dynamics, whilst largely indirect, could prolong tensions and sustain elevated energy prices longer. In such circumstances, Indonesia’s greatest risk is not military world war but rather prolonged economic warfare that erodes stability and welfare.
More Anticipatory Policy Agenda
This situation demands a policy approach shift. First, energy resilience must be positioned as a strategic priority, not merely a sectoral issue. High dependence on fuel imports renders Indonesia extremely vulnerable to geopolitical shocks.
Second, fiscal resilience requires strengthening through a state budget design that incorporates greater flexibility and buffers against energy price volatility.