Analysis of Strategy and Policy Options Following Escalation of Conflict in Iran
Escalation of conflict between Iran, the United States and Israel following the death of Ayatollah Sayed Ali Khamenei and the appointment of Ayatollah Sayed Mojtaba Husaini Khamenei has the potential to prolong military conflict in the Middle East. The intensity of air strikes and threats to international shipping lanes, particularly the Strait of Hormuz, suggest the conflict could develop into a regional war with direct consequences for global energy stability.
Uncertainty over the security of global energy shipping lanes and fluctuating oil prices have triggered volatility in global commodity prices, particularly foodstuffs, fertilisers and industrial raw materials. Rising commodity prices threaten to trigger inflationary pressures in various countries and disrupt global supply chain stability.
For Indonesia, this global crisis situation presents two dimensions simultaneously: economic risks in the form of imported inflationary pressures and energy supply disruptions, as well as economic opportunities from rising export commodity prices and expanded scope for accelerating industrialisation based on national resources.
Opportunities for National Industry
The Middle East conflict has the potential to accelerate the shift in global economic architecture towards patterns of energy, food and domestic industrial resilience, opening opportunities for Indonesian commodities to strengthen their strategic position in global supply chains.
Rising global prices for foodstuffs, fertilisers and energy can become an opportunity for Indonesia to accelerate the development of downstream industries based on natural resources, so that it no longer depends solely on exporting raw materials. The global crisis situation also opens opportunities for Indonesia to implement a national economic development strategy more oriented towards industrial self-sufficiency and national capitalism, as formulated by Soemitro Djojohadikusumo through the concept of strengthening basic industries and national industrialisation.
Meanwhile, the dynamics of Middle East conflict also have the potential to be exploited by radical groups within the country to mobilise ideological sentiment that could disrupt national security stability.
Recommended Policy Steps
To capitalise on strategic opportunities whilst anticipating the risks of global crisis, the following policy steps are recommended:
Strengthening national energy resilience, including enlarging strategic energy reserves, expanding diversification of oil import sources, and accelerating the development of domestic energy. Accelerating downstream industrialisation of strategic sectors, particularly in minerals, petrochemicals, fertilisers and energy, in order to increase national economic value-added.
Strengthening national food security, through increases in domestic production, strengthening government food reserves, and accelerating development of the fertiliser industry and agricultural raw materials. Promoting national industrialisation based on Sumitronomics, namely the development of basic industries, machinery industries, and high-value-added manufacturing industries to reduce import dependency.
Increasing domestic security vigilance, particularly against the potential mobilisation of radical groups that exploit Middle East conflict to trigger social and political instability.
Momentum for National Economic Transformation
The geopolitical crisis in the Middle East is not only a threat to global economic stability, but can also become a strategic opportunity for Indonesia to accelerate national economic transformation towards industrialisation and economic self-sufficiency.
If this opportunity is properly utilised through downstream industrialisation policies and strengthening the national economy, then the global crisis situation could instead become a catalyst for implementing a national economic development strategy aligned with the concept of national capitalism and state industrialisation previously proposed by Soemitro Djojohadikusumo.