Indef: US-Israel-Iran Conflict Drives Up Indonesia's Logistics Costs
The Institute for Development of Economics and Finance (Indef) has stated that the conflict involving the United States, Israel and Iran in the Middle East could potentially increase Indonesia’s national logistics costs.
M Rizal Taufikurahman, Head of Indef’s Centre for Macroeconomics and Finance, said the risk of energy supply disruptions in the Gulf region, particularly along the vital Strait of Hormuz, is driving up the cost of oil and liquefied petroleum gas (LPG) imports. This situation is quickly reflected in domestic distribution costs.
“What is felt immediately is more expensive maritime transport costs, which increase national logistics costs, whereas the price structure of goods in Indonesia is heavily influenced by inter-island distribution costs,” Rizal said when contacted in Jakarta on Monday.
He explained that maritime security risks could also potentially increase insurance premiums and transport tariffs. Consequently, inter-island distribution costs rise and food prices are pushed upward.
Indonesia’s goods price structure, which is heavily dependent on distribution costs, could also cause food prices, industrial raw materials and consumer goods to increase despite no disruption to domestic production, he noted.
According to Rizal, for countries that remain net importers of oil and LPG, rising energy prices quickly drive inflation through increased transport costs, electricity and food logistics expenses.
“Domestic inflation in this context is not caused by goods scarcity, but rather by the high cost of transporting goods to Indonesia and distributing them domestically,” he said.
He added that the manufacturing, retail, aviation and wholesale trade sectors are typically the fastest to be affected because business margins are eroded.
“Business actors tend to postpone expansion or reduce production volumes,” Rizal said.
The United States and Israel launched a series of attacks on several targets in Iran, including the capital Tehran, on Saturday 28 February, causing severe damage and resulting in civilian casualties.
In response, Iran launched missile attacks on Israeli territory and United States military facilities in the Middle East.
Iran reported that Supreme Leader Ayatollah Ali Khamenei was killed in the combined Israeli and American strikes.
The Islamic Revolutionary Guard Corps (IRGC) announced on Saturday the beginning of “the most brutal offensive operation in the history of Iranian armed forces” following confirmation of Khamenei’s death.
Iran has also closed the Strait of Hormuz amid the escalating situation in the Middle East on Saturday 28 February.