Middle East Crisis Tests Indonesia's Fuel Subsidy Policy
JAKARTA — The escalation of the Middle East crisis related to Iran is pushing up global oil prices and once again testing Indonesia’s fiscal resilience. As a net importer, the government faces a difficult choice: maintaining fuel price stability or bearing the burden of expanding subsidies.
Piter Abdullah, Policy and Programme Director at Prasasti Center for Policy Studies, believes pressure on domestic prices is almost inevitable. “When global oil prices rise, pressure on domestic fuel prices naturally increases,” Piter said in Jakarta on Monday (2 March 2026).
“If the government restrains price increases through subsidies, the consequence falls on increased fiscal burden. Conversely, if prices are allowed to rise, inflationary pressure could become stronger.”
Indonesia’s national oil consumption reaches nearly 1.5 million barrels per day, whilst domestic production falls short of half that amount. This import dependency makes Indonesia sensitive to global oil price movements and US dollar fluctuations.
In fiscal terms, there is a general principle that every $10 per barrel increase in global oil prices could add approximately Rp50 trillion to energy subsidy costs. “This figure demonstrates that the decision to restrain fuel prices through subsidies carries significant fiscal consequences, especially when global price trends are rising,” Piter explained.
He noted that fuel contributes substantially to inflation, both through direct effects and indirect impacts on production and distribution costs. “The impact of this crisis is substantial. First, it raises fuel prices. Second, it pushes the dollar higher, putting pressure on the rupiah. The combination of both will make imported goods more expensive and increase future inflationary pressure.”
According to Piter, macroeconomic stability in this Middle East crisis situation depends heavily on careful coordination of fiscal and monetary policies. “Balancing consumer purchasing power with maintaining fiscal health is key to ensuring national economic stability remains intact,” he concluded.