LPEM UI: Budget Deficit Could Exceed 3 Per Cent If Oil Prices Remain High
JAKARTA — The escalation of the conflict between Iran and the United States has raised fresh concerns about the stability of Indonesia’s fiscal position.
The surge in global oil prices triggered by disruptions to global energy supplies has the potential to widen Indonesia’s budget deficit, particularly if such pressures persist over the long term.
In a report titled “The Impact of the Iran-US War on Indonesia’s Economy,” the Institute for Economic and Social Research at the Faculty of Economics and Business of the University of Indonesia (LPEM FEB UI) warned that without budget revision, the fiscal deficit could breach the threshold that the government has hitherto maintained.
The potential widening of this deficit is closely linked to the position of energy as one of the sensitive components in Indonesia’s fiscal structure. When global oil prices rise, the burden of energy subsidies and government compensation tends to swell.
At the same time, economic slowdown resulting from global uncertainty could also potentially compress state revenues.
The geopolitical conflict in the Middle East has triggered significant disruptions to global energy distribution channels. The Strait of Hormuz, one of the world’s most critical energy shipping points, has experienced a sharp decline in activity.
These energy distribution disruptions are immediately reflected in commodity prices.
Between 27 February and 9 March 2026, the price of Brent crude oil rose by approximately 27 per cent to $91.80 per barrel, whilst gas prices surged around 74 per cent to €55.8 per megawatt-hour.
Rising global energy prices have broad implications for Indonesia’s economy. On one hand, energy import costs could increase, given that Indonesia remains dependent on oil supplies from Middle Eastern countries such as Saudi Arabia and the United Arab Emirates.
The LPEM FEB UI report notes that rising energy prices can increase pressure on the cost of living for the public, particularly vulnerable groups.
Energy price shocks are occurring at a time when many developing countries face fiscal constraints due to high debt burdens, leaving governments with limited capacity to absorb surging prices.
Within the framework of the 2026 state budget, the government has set a number of basic assumptions, including the price of Indonesian crude oil (ICP), the exchange rate of the rupiah, and projections of state revenues and expenditures.