Rupiah weakens amid Middle East conflict with potential impact on Indonesia's economy
The Indonesian rupiah weakened by 81 basis points, or 0.48 percent, closing at Rp16,868 per US dollar on Monday morning in Jakarta, compared to the previous close of Rp16,787 per US dollar.
Josua Pardede, chief economist at Permata Bank, stated that the rupiah’s depreciation was driven by conflict in the Middle East, which poses potential threats to Indonesia’s economy through energy price shocks and global financial market volatility centred on supply disruption risks.
“When tensions increase, market attention immediately turns to the Strait of Hormuz because tanker flows can slow or even be halted, whilst shipping and logistics are also disrupted,” he told ANTARA news agency in Jakarta on Monday.
In the latest escalation, he continued, there are indications that oil and liquefied natural gas shipments through Hormuz are being held up significantly, major shipping companies are avoiding the Persian Gulf, and activities at key ports have been temporarily suspended, causing shipping costs and insurance premiums to rise and energy supplies to become effectively tighter.
As a result, oil prices could spike sharply. For instance, benchmark crude oil temporarily rose approximately 13 percent to around 82 US dollars per barrel, although it currently trades at around 76.4 US dollars per barrel, and a full closure of Hormuz is estimated to potentially push prices above 100 US dollars per barrel, with implications for average Brent crude prices throughout 2026 at around 85 US dollars per barrel.
“The impact on global supply chains is increasingly significant because Hormuz is a narrow chokepoint through which a large share of oil and liquefied natural gas trade passes, so small disruptions quickly ripple through to logistics costs. Oil tanker rental rate projections that could approach 300,000 US dollars per day demonstrate the magnitude of pressure on energy transport costs when Hormuz risks rise,” he said.
From a financial markets perspective, the conflict is said to be prompting investors to reduce exposure to risky assets and shift funds to those deemed safer, thereby strengthening the US dollar and raising funding costs for emerging market nations.
For Indonesia, the most immediate consequence is ballooning import costs for fuel, as the country is a net importer of oil.
This worsens the oil and gas trade balance, puts pressure on the rupiah, and ultimately adds inflationary pressure through rising energy prices, transport costs, and imported goods inflation.
Previous escalation episodes showed this transmission pattern: rupiah depreciation, rising yields on government securities with 10-year maturity, and stock market correction as global sentiment deteriorates.
From a fiscal perspective, sensitivity is high because every 1 US dollar increase in benchmark oil prices can add approximately Rp10 trillion to government expenditure, whilst revenues only rise approximately Rp3 trillion, meaning the net deficit could widen significantly.
Given these circumstances, mitigation efforts must be undertaken by maintaining rupiah stability and foreign exchange supply through monetary measures and strengthening export foreign currency supplies, whilst also preparing fiscal buffers and targeted assistance for vulnerable groups.
“In this context, budgetary buffer space and strengthening social safety nets become key to ensuring energy shocks do not transform into deeper economic slowdown,” Josua said.