Celios: Iran-US Conflict Could Increase State Budget Spending by Rp515 Trillion

The Executive Director of the Centre of Economic and Law Studies (Celios), Bhima Yudhistira Adhinegara, has warned that the escalating conflict between the United States and Israel against Iran could cause state spending in Indonesia’s 2026 state budget to surge by Rp515 trillion.

Speaking with ANTARA in Jakarta on Monday, Bhima noted that crude oil prices could reach $100 to $120 per barrel due to closure of the Strait of Hormuz, given that oil prices have already risen approximately 13.4 per cent.

In the 2026 state budget simulation, each $1 increase per barrel in crude oil prices above the budgeted assumption will add Rp10.3 trillion to state spending.

The 2026 state budget assumes crude oil prices of $70 per barrel.

“This means if oil reaches $100 to $120 per barrel, state spending could increase by up to Rp515 trillion in 2026,” Bhima stated.

This situation will cause many countries, including Indonesia which is a net importer of oil, to face import difficulties.

He estimated that the conflict would have severe consequences for fuel prices.

“It is not only the burden of fuel subsidies, but also compensation to Pertamina and electricity subsidy burden. There is a double direct burden on the state budget. The situation is worsened by investor flight-to-quality concerns causing rupiah weakness,” he added.

Imported inflation from oil and food has the potential to create a downward spiral in public purchasing power.

“The public is clearly unprepared for fuel prices and volatile food inflation to rise excessively. If the conflict continues and widens, many developing countries will fall into economic crisis,” he stated.