Strait of Hormuz Closure Could Raise Indonesian Fuel Prices and Burden Budget, Inflation Looms

Jakarta – The closure of the Strait of Hormuz amid the escalation of the Iran–Israel conflict presents a worst-case scenario for Indonesia’s economy. Soaring global oil prices risk driving up domestic fuel prices and triggering inflation domestically.

Fahmy Radhi, an energy observer and economist at Gadjah Mada University (UGM), estimates that in a worst-case scenario, oil prices could breach USD 100 per barrel (approximately IDR 1,650,000) if the conflict continues to expand.

Fahmy stated that the impact of the war is already directly visible in global oil price movements. “It is having a very significant effect. If we look at price developments on the first day of the attack, it had already risen to around USD 67 per barrel. Now it is even in the range of USD 80 to 87 per barrel,” said Fahmy when reached by Kompas.com on Monday 2 March 2026.

“The Strait of Hormuz is the primary shipping route for oil exports. When closed, market supply automatically decreases. This becomes a major variable causing global oil prices to become increasingly expensive,” Fahmy explained.

He projected that if the war continues and escalates further, oil prices could breach USD 100 per barrel, or approximately IDR 1,650,000 per barrel. “If the war continues and expands, it is not out of the question that global oil prices could reach USD 100 per barrel,” he said.

“High oil prices will increase the burden on the state budget, particularly for energy subsidies,” he added.

For non-subsidised fuel such as Pertamax and higher-grade varieties, prices are likely to adjust according to market mechanisms. “Pertamax and above follow market prices, so there is a possibility they could rise,” said Fahmy.

“If prices are raised, it will certainly trigger inflation, reduce purchasing power, and increase the burden on poor households. But if they are not raised, the subsidy burden on the state budget will become heavier,” he noted.

He emphasised that as long as the war triggers supply disruptions and demand remains high, oil prices will find it difficult to fall. “Supply decreases, demand remains, so prices will definitely rise. Based on available data, my projection is that it could reach USD 100 per barrel,” said Fahmy.