Geopolitics and Its Impact on the Business World
“I’m not going to start wars, I’m going to stop wars,” stated US President Donald Trump in his victory speech following the US presidential election on 6 November 2024. Nevertheless, the Iran war, initiated by Israel-US attacks on Tehran on 28 February 2026, underscores that such statements amount to mere rhetoric.
It seems that neither the US nor Israel anticipated that the Iran war would have serious repercussions on global energy supplies. The scope of its impact far exceeds that of the 12-day war when Israel attacked Iran in June 2025.
Since the first strikes began, global oil prices have risen significantly. They reached their highest level on 9 March 2026, averaging USD119 per barrel. Compared to the Ukraine war, the acceleration in crude oil price increases due to the Iran war has been much faster.
In this Iran war, crude oil prices jumped above USD100 per barrel in less than two weeks. In contrast, during the Ukraine war in February 2022, the price surge took more than a month to reach levels above USD100 per barrel.
The closure of the Strait of Hormuz is the key factor behind the oil price surge. The Strait supplies 20% of the world’s crude oil, with 80% of it shipped to Asian countries.
IMF calculations indicate that every 10% rise in global crude oil prices could potentially increase inflation by 0.4 points. Using the assumption of crude oil prices as of 6 April 2026 compared to 28 February 2026, there has been a 55% increase in crude oil prices. Consequently, global inflation could rise by 2.2 points.
This rise in energy costs and global inflation could suppress domestic consumer purchasing power. Concerns over potential increases in subsidised fuel prices have triggered panic buying in some regions, such as Aceh, North Sumatra, and West Kalimantan. However, to date, there has been no government discussion on raising subsidised fuel prices.
If crude oil prices remain above USD100 per barrel, the fiscal burden will increase sharply. Estimates from CORE Indonesia show that if subsidised fuel prices rise to USD105 per barrel, assuming an exchange rate of Rp17,000, the energy subsidies the government must bear would amount to Rp433 trillion, a 106% increase compared to the allocation in the 2026 state budget. This could push the deficit beyond the legal limit of 3%.
Business World Under Pressure
Observing the latest geopolitical developments, the energy traffic blockage in the Strait of Hormuz does not appear likely to resolve in the coming weeks. Such conditions, of course, place increasing pressure on the business world. Even if the blockage in the Strait of Hormuz is relatively cleared, it will take considerable time to restore global crude oil distribution.
The problem is that Indonesia’s current situation is no more fortunate than that of other countries. In addition to limited tank infrastructure, other nations are scrambling for crude oil to secure their domestic supplies. Oil-exporting countries, such as Thailand, have also begun restricting exports.
According to information from the Ministry of Energy and Mineral Resources, Indonesia’s oil tanks can only store supplies for approximately 20 days. Meanwhile, other countries like Japan and South Korea have oil storage tank infrastructure for 254 and 251 days, respectively.
With rising global oil prices, manufacturing industry production costs will automatically increase. At the same time, the continued weakening of the rupiah exchange rate due to high US bond yields makes foreign investors inclined to sell rupiah and opt for the US dollar. The weakening rupiah also significantly raises production costs, as imported raw material expenses become more expensive.
In my estimation, small and medium industries (IKM) will feel the most significant impact. IKM generally lack sufficient financial room to absorb production cost increases due to soaring raw material and energy costs. Meanwhile, large and medium industries (IBS) tend to have the financial capacity to manage potential production cost rises.
Based on BPS records, in 2024, there were approximately 4.4 million IKM, with around 75% operating in the food, ready-made clothing, textile, and craft industries. These four industry types employ 6.8 million workers. If production costs continue to soar, businesses have no choice but to cut costs by laying off employees and reducing product quantities. As a result, worker wages are cut, impacting household consumption.
In conflict situations, there is indeed little that can be done. Conditions also tend to change rapidly. However, appropriate economic policy choices can at least alleviate the intensifying potential pressures.
Azhar Syahida. Researcher at the Center of Reform on Economics (CORE) Indonesia, Jakarta.