Middle East conflict could disrupt the industrial sector, the Ministry of Industry prepares mitigation measures

The Ministry of Industry (Kemenperin) said it would continue to monitor developments in the escalation of the geopolitical conflict between Iran, Israel, and the United States, as such tensions could have indirect impacts on the performance of the national manufacturing sector. Minister of Industry Agus Gumiwang Kartasasmita said the Middle East conflict could trigger volatility in global energy prices, disruptions to international trade routes, and higher costs for logistics and raw materials for industry. ‘We will continue to monitor developments in the Middle East conflict because the region is one of the world’s energy hubs and a very important global logistics corridor. Every escalation could potentially affect energy prices, the smooth functioning of supply chains for raw materials, and the logistics costs borne by the manufacturing sector,’ the minister said in a statement in Jakarta on Thursday (5/3). He explained that a rise in global energy prices would directly affect the manufacturing industry because most sectors use energy as a main production cost. Industries such as petrochemicals, basic metals, cement, fertilisers, and various other processing subsectors are highly sensitive to energy price fluctuations. ‘If global energy prices rise for an extended period, production costs in the manufacturing sector could also rise. This could affect production efficiency and the competitiveness of industrial products in domestic and export markets,’ Agus said. In addition to energy, geopolitical conflict could also affect the availability of industrial raw materials sourced from global markets. Some economists note that Middle East conflicts can disrupt international trade, trigger commodity price increases, and impact export performance for various countries. For Indonesia, the impact would be felt in sectors heavily dependent on imported raw materials, such as the chemical, petrochemical, textile, metal, and food and beverage industries. Geopolitical uncertainty could raise raw material procurement costs and extend delivery times due to changes in global logistics routes. The minister added that disruptions to international trade routes could also affect the export performance of the manufacturing sector. Geopolitical conflicts typically trigger volatility in global markets, causing demand from export destinations to fluctuate. ‘The development of the global geopolitical situation certainly requires us to anticipate together. Indonesia’s manufacturing exports have long been influenced by global economic stability and international demand,’ Agus said. Nevertheless, the minister emphasised that the government would continue to take anticipatory steps to safeguard the resilience of the national industrial sector. One strategy is to strengthen upstream industry structure, increase the use of domestically produced materials, and broaden diversification of export markets. ‘Strengthening upstream industries and increasing the use of domestically produced goods are crucial so that Indonesia’s manufacturing industry does not become overly dependent on global supply chains that are vulnerable to geopolitical turmoil,’ he said. In addition, the government is promoting greater energy efficiency in the industrial sector and accelerating the transition to a green industry. This step is seen as important to reduce reliance on fossil fuels whose prices are heavily influenced by global geopolitical dynamics. The minister is optimistic that the national manufacturing industry has sufficient resilience to face various global challenges, supported by an increasingly diversified industrial structure and the manufacturing sector’s continued role as the backbone of the national economy. ‘Kemenperin will continue to coordinate with a range of stakeholders, including industry players, associations, and relevant ministries/agencies, to ensure that the national manufacturing sector remains able to grow and remain competitive amid global economic dynamics,’ Agus said.