Israeli Strike on Iran Threatens to Inflate Indonesia's Fuel Subsidy Burden
JAKARTA — Economist Nailul Huda from the Centre for Economics and Law Studies (Celios) has warned that Israel’s strike on Iran on 28 February 2026 could place serious pressure on Indonesia’s fiscal position. The military action has the potential to increase the government’s fuel subsidy burden as tensions in the Middle East threaten to drive up global oil prices.
Huda explained that the government’s BBM subsidy budget could expand significantly because Middle Eastern tensions have the potential to raise world oil prices. Should the oil price assumption in the state budget be substantially exceeded, the government’s fiscal space will come under pressure, as the administration must cover the difference between the economic price and the price charged to consumers.
“When oil prices rise, the government’s subsidy burden will balloon, especially for fuel. Our budget will collapse if there is no budget reallocation to BBM subsidies,” he told Kompas.com on 28 February 2026.
On the other hand, the option of taking on additional debt is becoming increasingly limited. Huda highlighted reports from international rating agencies such as Moody’s and S&P, which have raised concerns about the quality of Indonesia’s fiscal management.
“Relying on new debt is also difficult because there are reports from Moody’s and the latest from S&P stating that our fiscal management is poor,” he said.
On the day of the statement, world oil prices had already reached $73 per barrel, an increase from $65 per barrel at the beginning of February 2026.
“The impact will certainly be that the oil price increase will be quite significant. What the US is doing is the same as what Russia did to Ukraine, which will cause global turmoil,” he added.
Iran subsequently launched a retaliatory strike on Israel by firing ballistic missiles at a US military base in Bahrain. This situation has sparked an increasingly tense regional environment.
Meanwhile, negotiations between the US and Iran involve American demands that Iran halt its nuclear programme. The US opposes Iran’s uranium enrichment, which has already reached 60 per cent.