Iran Conflict Escalates, Indonesian Inflation Surges: Can the Composite Index Withstand the Pressure?

Indonesia’s financial markets were projected to face continued heavy pressure. Global economic uncertainty, escalating tensions in the Middle East, and domestic economic data would be key market drivers.

The Composite Index (IHSG) fell deeper at the close of trading on Monday, 2 March 2026, dropping 206.29 points or 2.5% to 8,029.2. This level represents the weakest performance in the past two weeks.

From the US stock market, Wall Street was nearly flat in Monday or Tuesday morning trading (Indonesia time). The index initially fell following US and Israeli air strikes against Iran over the weekend, but subsequently recovered as investors engaged in buying on dips. The S&P 500 rose 0.04% to 6,881.62. The Nasdaq Composite strengthened 0.36% to 22,748.86. Meanwhile, the Dow Jones Industrial Average fell 0.15% to 48,904.78.

A coordinated US and Israeli strike against Iran over the weekend killed Iran’s Supreme Leader and shook global markets. Oil prices surged and most foreign stock indices closed lower. However, US investors used the initial weakness to hunt for bargains, reflecting expectations that disruptions from this conflict would be limited.

“Market participants think this is all temporary and the oil sector issue will soon ease,” said Bill Smead, founder and chairman of Smead Capital Management, to Reuters.

The conflict initially drove gains in defence sector stocks and energy prices whilst pressuring travel and interest-rate-sensitive shares. Investors subsequently shifted to technology stocks whilst considering how long the Middle East conflict would last and its impact on inflation and Federal Reserve policy.

Smead said investors returned to familiar, high-performing stocks such as Nvidia, the “Magnificent Seven” technology shares, and the defence sector. “When people are afraid, they return to what feels comfortable,” he said.

In Asia, stock markets slumped due to oil price spikes and conflict-related uncertainty. Japan’s Nikkei 225 index weakened 1.73%, having initially plunged up to 2% at opening. Energy company stocks, whose profits rise with oil prices, outperformed the market. Conversely, travel and airline stocks fell due to flight cancellations, increased jet fuel costs, and widespread Middle East airspace closures.

Some oil and gas facilities in the Middle East halted production. US crude oil closed up 6% at US$71.23 per barrel, after surging nearly double that increase during the trading session.

Defence sector stocks also surged, with the main US defence index, the Dow Jones U.S. Defence Index, trading higher.

European markets fell. European shares closed in negative territory as global markets weakened following large-scale US and Israeli strikes against Iran over the weekend. The pan-European Stoxx 600 index closed down nearly 1.7%, with most major exchanges in negative territory.

Key index movements included:

• CAC 40: 8,394.32 (−186.43 points / −2.17%)

• FTSE MIB: 46,280.40 (−929.49 points / −1.97%)

• FTSE 100: 10,780.11 (−130.44 points / −1.20%)

• DAX (Germany): 24,638.00 (−646.26 points / −2.56%)

• IBEX 35: 17,875.80 (−485.00 points / −2.64%)

• STOXX Europe 600: 623.63 (−10.22 points / −1.61%)

Norwegian oil and gas exporters, Vår Energi and Equinor, each surged 6% and 8% respectively as concerns about global energy supplies intensified. European defence stocks closed mixed after paring earlier gains. UK-based BAE Systems rose 6%, whilst Swedish fighter jet maker Saab fell 0.5%. Italy’s Leonardo rose nearly 3% and Germany’s Renk strengthened more than 3%. However, Italian aerospace company Avio fell 1%.

Companies in the travel and tourism sectors collapsed sharply as global disruptions continued on Monday. Anglo-American cruise operator Carnival PLC fell 8%, and International Consolidated Airlines weakened more than 5%. TUI AG plummeted nearly 10%, whilst Lufthansa fell 5%.

European markets reacted negatively to the escalation of the US-Israel-Iran conflict, reflecting investor concerns about ongoing impacts on energy, inflation, and global economic stability.

Indonesia’s financial markets were projected to face continued heavy pressure today. Global economic uncertainty, escalating Middle East tensions, and domestic economic data would drive markets.

February 2026 Inflation

Indonesia’s Statistics Bureau (BPS) reported that the Consumer Price Index (IHK) in February 2026 surged. Price increases were primarily driven by rising food commodity prices ahead of and during Ramadan.

BPS Deputy for Distribution and Services Statistics Ateng Hartono stated that February 2026 monthly inflation reached 0.68%, the highest since April 2025. Year-on-year, the IHK inflation rate was recorded at 4.76%, the highest since March 2023 or in nearly two years.

BPS data showed that the majority of regions experienced price increases. Thirty-three provinces recorded inflation, whilst five provinces experienced deflation. The highest inflation occurred in South Sulawesi at 1.04%, whilst the deepest deflation was recorded in West Papua at 0.65%.

The food, beverage, and tobacco category was the primary source of price pressure with inflation of 1.54%. This category contributed 0.45% to overall monthly inflation. According to BPS, several food commodities made dominant contributions to price increases. Broiler chicken contributed 0.09% to inflation, followed by bird’s eye chilli at 0.08%, fresh fish at 0.05%, and red chilli at 0.04%. Meanwhile, tomatoes, rice, and chicken eggs each contributed approximately 0.02%.