Not All Bad News: Indonesia Can Reap Major Benefits from Middle East Conflict

Indonesia Eximbank Institute is continuously monitoring the developments in the escalation of the conflict in the Middle East, which has the potential to increase volatility in global energy prices as well as international trade logistics costs.

“We are carefully monitoring the dynamics in the Middle East region, including the security of strategic shipping routes such as the Strait of Hormuz, which is one of the world’s main energy trade arteries,” said Head of Indonesia Eximbank Institute Rini Satriani in a written statement on Friday (20/3).

The Indonesia Eximbank Institute states that, taking into account commodity price dynamics and global trade conditions, Indonesia’s exports in 2026 are estimated to still grow in the range of 4-5%, and could potentially increase to around 5-6% in 2027, provided that global demand recovers gradually and geopolitical tensions subside.

Rini explained that the escalation of the conflict in the Middle East does indeed have the potential to increase volatility in global energy prices as well as international trade logistics costs. However, for Indonesia, the direct impact on trade is estimated to be relatively limited given the small trade exposure to that region.

The main risks instead emerge through indirect channels, particularly rises in energy prices, exchange rate volatility, and slowdowns in industrial activity in major trading partner countries that could affect Indonesia’s export dynamics.

Citing data from the Central Statistics Agency (BPS), Indonesia’s exports to the Middle East account for only around 4.2% of total national exports, with major commodities including palm oil, jewellery, and cars and other motor vehicles.

Meanwhile, Indonesia’s imports from the region reach around 3.9% of total national imports and are dominated by energy commodities, particularly oil.

This trade structure indicates that Indonesia’s direct trade exposure to the conflict region is relatively limited.

Based on the latest data, the majority of Indonesia’s exports flow to other regions such as East Asia (36.4%), Southeast Asia (20.8%), North America (11.5%), South Asia (9.6%), and Western Europe (5.7%), so the economic dynamics in those regions remain determining factors for national export performance.

Rini outlined that the Middle East region plays a strategic role in the global energy system because it contributes more than 30% of world oil production, while around 20-30% of global oil trade passes through the Strait of Hormuz.

“Disruptions to this route can quickly affect international energy prices as well as increase global trade logistics costs,” she stated.

According to her, although Indonesia’s oil imports do not directly come from the Middle East, the impact can still be felt through regional trade routes. Around 75% of Indonesia’s oil imports come from Singapore and Malaysia, which are oil trading and processing hubs in Asia.

“These two countries also import crude oil from the Middle East, so supply disruptions in that region could drive up energy prices faced by Indonesia,” she explained.

In addition, the Indonesia Eximbank Institute is also examining the impact of changes in global energy distribution on major oil-importing countries from the Middle East such as China, Japan, India, and South Korea. These countries are major energy consumers from the Gulf region as well as important export markets for Indonesia.

“Increases in energy costs could potentially pressure industrial activity in those countries and affect demand for Indonesian export products,” she said.

If geopolitical tensions persist for a relatively long period, global oil prices throughout 2026 are estimated to move in the range of US$85-120 per barrel on average, higher than the early-year average which is still around US$60 per barrel.

Rises in energy prices and logistics costs could potentially increase production costs in various global industrial sectors. For Indonesian exporters, this pressure will be more pronounced in sectors with high dependence on imported raw materials, such as manufacturing, petrochemicals, and basic metals.

“In such conditions, rises in input costs could erode production margins, especially if global demand experiences a slowdown at the same time,” she added.

In addition, global financial market volatility could also exert pressure on the exchange rates of emerging market countries, including Indonesia. Currency weakening could increase the cost of importing raw materials for domestic industries, thereby amplifying cost pressures for export-oriented sectors.

Amid these various risks, she continued, several Indonesian export commodities are instead experiencing price increases along with the rise in global energy prices. Coal, which contributes around 8-9% to total national exports, has the potential to receive a price boost.

Meanwhile, crude palm oil (CPO) prices are also showing a relatively strong trend in line with the still solid global demand for agro commodities.

In addition, a number of commodities with local raw materials, amid the previous trend of declining interest rates, are also pressing production costs, thereby opening room for increased competitiveness of Indonesian export products in global markets.

“Overall, rises in energy and agro commodity prices can help support Indonesia’s export performance in the short term. However, volatility in metals commodities and the industrial sector still needs to be anticipated, especially if a deeper global economic slowdown occurs,” she concluded.