Indonesian Business Community Alarmed by US-Israel-Iran Conflict, Consequences Are Serious

Indonesia’s business community is increasingly concerned about the escalating conflict between the United States, Israel, and Iran, with fears that economic ramifications could spread from energy price spikes to logistics costs and potential food price pressures.

Shinta Widjaja Kamdani, Chairman of the Indonesian Employers’ Association (APINDO), stated that the primary risk from the Middle East conflict extends beyond market sentiment. Threats also stem from potential disruptions to global energy and trade routes, particularly at the Strait of Hormuz.

The strait represents a vital global energy commerce hub, with approximately 20% of the world’s oil transiting through the region.

“Business operators are currently concerned about rising risk premiums on oil and gas prices, as well as increases in international logistics costs. Even without physical closure of the shipping route, uncertainty alone can drive spikes in global energy prices and logistics costs,” said Shinta.

As an oil-importing nation, Indonesia faces potential production cost pressures should global energy prices surge. This situation could also narrow fiscal space if energy prices exceed assumptions in the State Budget (APBN).

Food Inflation Risk

Beyond energy, APINDO is monitoring potential spillover effects on food inflation. Rising energy costs are expected to impact distribution, logistics, and transportation costs for food commodities.

“Under certain conditions, these pressures can accelerate increases in staple goods prices, particularly if accompanied by global supply disruptions or currency weakness. Therefore, maintaining stable food supply and distribution becomes crucial if conflict impacts widen and persist,” Shinta added.

From a fiscal perspective, if energy prices remain elevated, government subsidies and energy compensation could increase. Shinta believes the government must carefully manage these risks to avoid excessive pressure on the deficit or government debt financing.

Disciplined debt management, maintaining deficits within credible corridors, and ensuring government spending targets effectiveness are regarded as important factors for preserving market confidence.

On the external front, global risk-off dynamics could also increase exchange rate volatility. Rupiah weakness would raise the cost of importing energy and food, making it essential to strengthen coordination between monetary and fiscal policy to maintain macroeconomic stability.

“The impact on the business sector itself will vary. Industries with high dependence on energy and international logistics will experience direct pressure,” she explained.

Labour-Intensive Sectors Vulnerable

According to Shinta, labour-intensive sectors are among the most vulnerable. These sectors typically operate on thin margins and are highly sensitive to rising distribution costs, imported raw material expenses, and export demand disruptions.

Although Indonesia’s direct trade relations with Iran and Israel are relatively limited, Shinta believes indirect effects are more significant. These include global energy price increases, international trade disruptions, food inflation, exchange rate movements, and financial market sentiment shifts.

In the short term, business operators are focusing on realistic and adaptive risk mitigation measures. These include adjusting production and distribution cost structures, improving operational efficiency, and implementing more disciplined risk management, including foreign exchange exposure management.

Additionally, the business community is diversifying supply sources and utilising hedging instruments or natural hedging strategies where available.

“Overall, the business sector is approaching this situation with a wait-and-see approach but prepared should global pressures continue,” Shinta explained.

APINDO is also urging the government to maintain measured energy and food price stability, strengthen strategic reserves and logistics distribution, ensure fiscal and monetary discipline, and implement prudent debt management.

Impact on Tourism Sector

The intensifying geopolitical situation in the Middle East is also expected to potentially affect Indonesia’s tourism sector. Global conditions could influence the transport sector, including flight cancellations.

“From the tourism sector itself, whatever happens today—volatility in energy prices, exchange rates, and so on—will definitely impact it. We all understand that,” said Veronica H Sisilia, Commercial Director of InJourney, at a press conference at Sarinah Building, Central Jakarta, on Monday 9 March.

However, Veronica believes Indonesia’s domestic tourism sector still maintains strong resilience.

One supporting factor is domestic tourism attraction. Based on December 2025 figures, international tourist arrivals increased by 14.4%. According to her, these conditions demonstrate that Indonesia’s national tourism sector remains reasonably strong.

“Flight cancellations and so on will definitely happen. That will definitely have an impact—it’s unavoidable. But we believe that the domestic tourism industry segment is strong enough for whatever InJourney has prepared,” Veronica added.