Indonesia Says Iran War Hurts National Economy in Three Ways
Indonesia Says Iran War Hurts National Economy in Three Ways
Jakarta. Indonesia could face economic pressure from the ongoing conflict in Iran through three main channels — trade, financial markets, and fiscal stability — Finance Minister Purbaya Yudhi Sadewa said on Wednesday.
Military strikes by the United States and Israel on Iran triggered the closure of the Strait of Hormuz, sending global oil prices sharply higher and briefly pushing them to $118 per barrel. Although prices have since retreated to below $100 per barrel, they remain about 40% higher than levels before the conflict.
The surge in oil prices could directly affect Indonesia’s trade balance, as the country still relies heavily on energy imports, particularly crude oil, Purbaya said during a press conference in Jakarta.
“Through the trade channel, higher oil prices could increase the cost of oil and gas imports and put pressure on Indonesia’s trade surplus and balance of payments,” Purbaya said.
Capital Outflow Risks
The war has also heightened global geopolitical uncertainty, prompting investors to move funds into safe-haven assets such as the US dollar and US government bonds.
According to Purbaya, this shift could trigger significant capital outflows from emerging markets, including Indonesia.
“Through the financial market channel, global uncertainty can trigger capital outflows, putting pressure on stocks, bonds, and the rupiah exchange rate, while also increasing the cost of funding,” he said.
Fiscal Pressure From Higher Energy Costs
The conflict could also affect Indonesia’s fiscal position, as the government may need to rely more heavily on the state budget to cushion the economic impact through social assistance programs, subsidies, and other incentives to maintain household purchasing power.
If geopolitical tensions persist, fiscal pressure could increase as the government expands support programs, Purbaya said.
This year, the government has allocated Rp 381 trillion ($22.6 billion) for energy subsidies to keep low-grade gasoline prices at Rp 10,000 per liter and diesel at Rp 6,800 per liter. The subsidies also cover cooking gas and household electricity.
The subsidy budget was calculated using an assumption of global oil prices at $70 per barrel.
Analysts say a sharp rise in oil prices could increase subsidy spending by as much as Rp 150 trillion, adding significant pressure to the state budget.
Commodity Windfall
Despite the risks, Indonesia could also benefit from higher global commodity prices triggered by the conflict.
Purbaya said the country is seeing windfall gains from key export commodities such as coal, crude palm oil (CPO), and nickel.
“The government continues to closely monitor these developments, ensuring that fiscal instruments respond effectively while maintaining prudent fiscal management so policy responses remain measured and economic stability and purchasing power are preserved,” Purbaya said.
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