State Spending Could Swell by Rp 10.3 Trillion for Every $1 USD Rise in Oil Prices
JAKARTA – Rising global crude oil prices could impact state spending and deal a blow to Indonesia’s economy. The surge in oil prices has been triggered by military action by the United States and Israel against Iran.
Susiwijono Moegiarso, Secretary of the Coordinating Ministry for Economic Affairs (Sesmenko), stated that rising oil prices are a sensitive matter for the state budget. He noted that the primary impact of the US-Israeli strikes on Iran is disruption to global supply chains. This situation will be aggravated should Iran carry out its threat to completely close the Strait of Hormuz.
According to Susiwijono, as oil price increases become unavoidable, they will have direct consequences for the State Revenue and Expenditure Budget (APBN). “Oil price sensitivity to our budget is quite high because in our APBN, for every $1 USD increase in ICP (Indonesian Crude Price), we must add Rp 10.3 trillion to spending. This additional Rp 10.3 trillion in expenditure is due to energy subsidies and compensation,” he said during the UOB Media Editors Circle discussion on Economic Volatility and Middle Class Prosperity.
“So the deficit is around Rp 6.7 trillion for every $1 increase. This is what makes it quite sensitive,” he added.
Susiwijono explained that the government will continue to monitor developments in the global conflict. If conditions deteriorate, it will ultimately result in rising inflationary pressure, which will increase not only energy prices but also raw material costs for domestic industry, most of which are imported.
“When inflation rises, monetary authorities typically use interest rate adjustments and other tools, resulting in monetary policy tightening that could potentially slow economic growth,” he explained.
Such conditions would prompt investors to seek safe-haven assets, with projections suggesting increased gold prices and government bond values. “This will put downward pressure on the stock market,” he concluded.
Deni Surjantoro, Head of the Bureau of Communications and Information Services at the Ministry of Finance, stated that the conflict could trigger increases in several strategic commodity prices, particularly crude oil, coal, crude palm oil (CPO), and nickel. “The Middle East conflict has the potential to impact rising commodity prices (ICP, coal, CPO, nickel), inflationary pressures, exchange rate volatility, interest rates, and partially affect economic activity,” Deni told Kompas.com.