Government Urged to Increase Subsidies to Mitigate Iran-US Tensions

Jakarta — Wijayanto Samirin, an economist at Paramadina University, has recommended that the government increase energy subsidies to mitigate the economic impact of the conflict between Iran and the United States.

According to Wijayanto, fuel oil (BBM) subsidies would increase by approximately Rp3 trillion to Rp4 trillion for every one-dollar rise per barrel.

“If subsidies are not increased, fuel prices will rise, inflation will climb, consumer purchasing power will fall, and this will ultimately lead to slower economic growth,” Wijayanto told ANTARA in Jakarta on Monday.

Furthermore, closure of the Strait of Hormuz could potentially increase global risk, prompting investors to move their funds into assets considered safer, such as gold or currencies with strong exchange rates.

If the rupiah weakens, he continued, the government will face difficulties in issuing State Securities (SBN) used to finance the budget deficit under the State Budget.

“This would only be possible by raising interest rates, which would increase interest costs and ultimately burden the State Budget,” he added.

He therefore believes that increasing subsidies could be a mitigation measure adopted by the government amid the current escalation of conflict.

Separately, Coordinating Minister for Economic Affairs Airlangga Hartarto stated that conflict between the US and Iran could potentially trigger fuel price increases domestically.

According to him, price pressures can still be contained because oil supply from the US has increased and the Organisation of Petroleum Exporting Countries (OPEC) has also expanded production capacity.

The government has anticipated potential supply disruptions from the Middle East region by signing a memorandum of understanding (MoU) to obtain oil supplies from outside that region.