LPEI: Impact of Middle East Conflict on Indonesia's Trade Remains Limited

The main risks instead emerge through indirect channels, particularly the rise in energy prices, exchange rate volatility, and a slowdown in industrial activity.

Jakarta (ANTARA) - Indonesia Eximbank (LPEI) assesses that the direct impact of the escalation of the Middle East conflict on Indonesia’s trade remains relatively limited.

This assessment is based on the small trade exposure to the region.

“The main risks instead emerge through indirect channels, particularly the rise in energy prices, exchange rate volatility, and a slowdown in industrial activity in major trading partner countries that could affect Indonesia’s export dynamics,” said Head of Indonesia Eximbank Institute Rini Satriani in her statement in Jakarta on Wednesday.

Data from the Central Statistics Agency (BPS), processed by the Indonesia Eximbank Institute, shows that Indonesia’s exports to the Middle East amount to only about 4.2% of total national exports.

The main commodities include crude palm oil (HS 1511), jewellery (HS 7113), and cars and other motor vehicles (HS 8703).

Meanwhile, Indonesia’s imports from the region reach about 3.9% of total national imports and are dominated by energy commodities, particularly oil.

This structure indicates that Indonesia’s direct trade exposure to the conflict zone is relatively limited.

Most of Indonesia’s exports instead flow to other regions such as East Asia (36.4%), Southeast Asia (20.8%), North America (11.5%), South Asia (9.6%), and Western Europe (5.7%).

Thus, economic dynamics in those regions remain the primary determinants of national export performance.

Nevertheless, Rini said her institution continues to monitor developments in the conflict and their implications for global trade, particularly regarding the stability of international energy routes.

“We are closely monitoring the dynamics in the Middle East region, including the security of strategic shipping lanes such as the Strait of Hormuz, which is one of the world’s main arteries for energy trade,” she said.

The Middle East region plays a strategic role in the global energy system, contributing more than 30% to world oil production.

Around 20-30% of global oil trade also passes through the Strait of Hormuz. Disruptions to this route could quickly impact international energy prices and increase global logistics costs.

Although Indonesia’s oil imports do not come directly from the Middle East, the effects are still felt through regional trade routes.

About 75% of Indonesia’s oil imports come from Singapore and Malaysia, which are hubs for oil trading and refining in Asia.

Those two countries also import crude oil from the Middle East, so supply disruptions could drive up domestic energy prices.

The Indonesia Eximbank Institute is also observing the potential impact of changes in global energy distribution on major Middle East oil importers such as China, Japan, India, and South Korea.

Those countries are important export markets for Indonesia, so rising energy costs could pressure industrial activity and demand for Indonesian products.

If geopolitical tensions persist, global oil prices through 2026 are projected to range between $85-120 per barrel, higher than the early-year average of around $60 per barrel.

Rising energy prices and logistics costs could increase production costs across various global industrial sectors.

For Indonesian exporters, the pressure will be felt in sectors with high dependence on imported raw materials, such as manufacturing, petrochemicals, and basic metals. Rising input costs risk eroding margins, especially if global demand weakens.

Additionally, global financial market volatility could also pressure the exchange rates of emerging market countries, including Indonesia.

A weakening rupiah could increase the cost of importing raw materials, thereby adding pressure to export-oriented industries.

Amid these risks, several Indonesian export commodities could actually benefit from rising global energy prices.

Coal, which contributes about 8-9% to total national exports, could see price increases. Crude palm oil (CPO) prices are also showing a strong trend alongside solid global demand.

Moreover, several commodities based on local raw materials will benefit from previous interest rate cuts that help suppress production costs, thereby enhancing the competitiveness of Indonesian export products.

“Overall, rising prices for energy and agricultural commodities can help support Indonesia’s export performance in the short term. However, volatility in metals commodities and the industrial sector still needs to be anticipated, especially if a deeper global economic slowdown occurs,” said Rini.

Considering commodity price dynamics and global trade conditions, Indonesia’s exports in 2026 are projected to still grow in the range of 4-5%, and could potentially increase to around 5-6% in 2027, provided global demand recovers gradually and geopolitical tensions ease.