Rising Oil Prices Strain the State Budget: The Urgency for Indonesia to Have Strategic Reserves

The surge in global oil prices is not merely a global market issue—for Indonesia, it directly translates into pressure on the State Revenue and Expenditure Budget (APBN). Every increase in oil prices widens the burden of energy subsidies and compensation, often much faster than the state’s ability to adjust revenues. When prices spike sharply, fiscal space narrows in a short time.

What has occurred in the Strait of Hormuz since early March 2026 illustrates how quickly such pressure can emerge. Following US and Israeli airstrikes on Iranian military facilities, the Islamic Revolutionary Guard Corps (IRGC) closed the waterway that carries nearly 20 percent of the world’s oil supply.

More than 150 tankers are held up, while Iraq has cut exports from Basra by about 70 percent. Within weeks, Brent crude prices surged past US$100 per barrel, reaching a peak of US$119.5 per barrel on 9 March 2026—a nearly 45 percent increase in just one month.

For countries with policy buffers, this volatility can be dampened. But for Indonesia, which lacks strategic oil reserves, the spike quickly translates into tangible fiscal pressure.

Unavoidable Fiscal Pressure

The impact of the oil price surge does not stop at the energy market but directly spills over into the APBN structure. Every rise in Indonesian Crude Price (ICP) brings significant fiscal consequences.

Coordinating Minister for the Economy Secretary Susiwijono Moegiarso stated that each US$1 increase in ICP could add around Rp10.3 trillion to state expenditure, while additional non-tax revenue from oil and gas is only about Rp3.6 trillion. This means a net additional deficit of around Rp6.7 trillion for every US$1 rise in oil prices.

Assuming the 2026 APBN is prepared at an ICP of US$70 per barrel, a surge to US$100 alone means additional pressure of about Rp200 trillion. At the crisis peak of US$119.5 per barrel, the estimated additional deficit approaches Rp332 trillion—about 84 percent of the total 2025 APBN energy subsidy and compensation budget of Rp394.3 trillion.

These figures do not yet account for follow-on effects such as rupiah weakening, rising logistics costs, and a shift in consumption to subsidised fuels, which could multiply the fiscal pressure.

Indeed, such scenarios do not occur every time. But when the probability is low yet the impact is very large, the expected loss remains significant. A single crisis episode can erase fiscal space built up over years.

Strategic Reserves: A Game Changer in Energy Crises

Amid the crisis, countries with Strategic Petroleum Reserves (SPR) have demonstrated the ability to dampen volatility quickly. The United States, along with International Energy Agency (IEA) member countries, released large volumes of strategic reserves into the market. This step not only adds physical supply but also alters market expectations—pressing down prices in a short time.

SPR in this context is not merely an emergency reserve but an active intervention instrument. With the right design, these reserves can be managed counter-cyclically: filled when prices are low and released when prices are high. Even, in certain schemes, this mechanism can generate fiscal value added, rather than just reducing losses.

The Cost Appears Expensive

The most common argument against building strategic reserves is the cost. A study by the Economic Research Institute for ASEAN and East Asia (ERIA) estimates the investment needed for reserves equivalent to 90 days of imports at around US$20 billion or approximately Rp320 trillion, with costs of about US$7.9-8.2 per barrel.

Through a mixed portfolio scheme—combining national development with joint stockpiling and ticket stock mechanisms—this investment need can be reduced to around Rp288 trillion to Rp304 trillion.

However, these figures need to be viewed in a broader perspective. A single crisis episode like the current one could potentially add a deficit of up to Rp332 trillion.

In other words, the long-term investment cost could be equivalent—or even smaller—than the losses from one crisis event.

Of course, implementation challenges remain: initial financing needs, governance risks, and infrastructure limitations. But these risks are manageable. In contrast, the absence of strategic reserves creates systemic vulnerability that directly impacts fiscal stability.

From Urgency to Decision

The lessons from this crisis should end the debate on whether Indonesia needs strategic oil reserves. Policy focus needs to shift to design and execution. Three steps become urgent.

First, establishing a gradual national strategic reserve target—for example, 45 days in three years towards 90 days—bound in a legislative framework. Second, designing a price cycle-based filling and release mechanism so that reserves do not become passive assets. Third, expanding cooperation with exporting countries through joint stockpiling schemes to reduce initial investment needs.

Since 2004, Indonesia has been a net oil importer. However, the energy resilience policy architecture has not fully reflected this reality. In an increasingly uncertain world, dependence without strategic buffers is an expensive risk.

Today’s Hormuz crisis provides something rare: empirical evidence, political momentum, and a very clear warning. The question is no longer whether Indonesia needs strategic reserves, but whether we are prepared to bear much greater costs every time the next crisis arrives.