Maintaining Stable Energy Prices Amid the Global Crisis

The assumption for fuel prices in the 2026 state budget is $70 per barrel. Meanwhile, due to the global crisis triggered by the US-Israel war against Iran, which has led to the closure of the Strait of Hormuz—a key global fuel distribution route—world oil prices have skyrocketed. As of the writing of this piece, global oil prices have reached $115 per barrel. Simulations for the 2026 state budget indicate that for every $1 increase in fuel prices above the budget assumption, state revenues will rise by Rp3.5 trillion because Indonesia still exports oil. However, on the expenditure side, the budget will incur an additional Rp10.3 trillion for fuel subsidies. Thus, a deficit of Rp6.8 trillion occurs for every $1 rise in fuel prices above the budget assumption. Nevertheless, the government’s decision to maintain prices of fuel, electricity, and 3kg LPG without increases is commendable. The government recognises that raising prices of fuel, electricity, and 3kg LPG would burden the public, whose purchasing power is relatively stagnant and, according to some data and studies, tending to weaken. Moreover, increasing fuel prices would lead to inflation. A rise in fuel prices would cause increases in the prices of various goods and services, ultimately potentially preventing the government and Bank Indonesia’s inflation target of 2.5 percent plus or minus 1 percent for 2026 from being met, which could undermine the credibility of the government and BI. To sustain these fuel prices, the government is striving to boost revenues, for instance, through intensifying tax collection (improving the tax system via CoreTax and pursuing stubborn taxpayers) and enhancing spending efficiency in other sectors. Additionally, it is reallocating budgets to fund subsidies for fuel, electricity, and 3kg LPG, and the latest measure is the provision for working from home. It is hoped that all these efforts will help maintain subsidies for fuel, electricity, and 3kg LPG.