Middle Eastern Turmoil Pressures Indonesian Economy: Deficit Threatened

JAKARTA — The closure of the Strait of Hormuz by Iran in an escalating conflict with the United States has triggered a major shock to global energy markets.

According to the Economic and Social Research Institute (LPEM) at the Faculty of Economics and Business of the University of Indonesia (FEB UI) in a report on the Impact of the Iran-US War on Indonesia’s Economy, this strategic shipping route represents one of the most crucial maritime chokepoints in the world, with approximately one quarter of global oil trade passing through it daily.

This disruption to energy distribution was immediately reflected in surging commodity prices. During the period from 27 February to 9 March 2026, the price of Brent crude oil increased to approximately US$91.8 per barrel, or about 27 per cent.

The rise in energy prices has the potential to trigger global inflationary pressures and increase production and distribution costs, including in the food sector.

This situation occurs when many developing nations are still facing limited fiscal space and debt payment obligations, making their capacity to absorb the surge in energy prices increasingly constrained.

LPEM FEB UI stated that the Strait of Hormuz plays a central role in the global energy supply chain. In 2024, total oil transported through the strait reached approximately 20 million barrels per day (bpd), equivalent to 25 per cent of global maritime oil trade.

However, alternative energy distribution routes through land pipelines have limited capacity. Of the oil volume passing through the Strait of Hormuz, only approximately 4.2 million bpd can be diverted through pipeline networks in Saudi Arabia and the United Arab Emirates.

Approximately 70 per cent of crude oil passing through the Strait of Hormuz is destined for Asian countries such as China, India, and Japan.

Beyond the surge in energy prices, the Iran-US conflict is also reflected in rising global logistics indices. Oil tanker indices such as the Baltic Clean Tanker Index and Baltic Dirty Tanker Index have increased following the conflict, whilst the World Container Index has also shown an upward trend since the beginning of the escalation.

LPEM FEB UI noted that increased global geopolitical uncertainty is placing pressure on Indonesia’s economy through a number of transmission channels.