Strait of Hormuz Tensions Threaten to Swell Indonesia's Energy Subsidies

Jakarta – Conflict between Iran and the United States has the potential to depress the rupiah exchange rate to as much as Rp 17,000 per dollar. Another risk emerging relates to Indonesia’s energy subsidy burden.

This threat is linked to Iran’s control of the Strait of Hormuz. Approximately 20 per cent of global oil production, or nearly 20 million barrels per day, passes through this channel.

Disruptions to the Strait of Hormuz could trigger a surge in global energy prices. The economic stability of various countries, including Indonesia, would be shaken.

Weakening of the rupiah could deepen further, potentially reaching Rp 17,000 per dollar, which would trigger inflation in imported goods as many raw materials for Indonesia’s manufacturing sector still depend on foreign markets, according to analysis released on Monday, 2 March 2026.

The potential spike in global oil prices could increase the burden of energy subsidies within Indonesia’s state budget. Indonesia remains dependent on energy imports.

Rising oil prices increase the cost of maintaining affordable fuel and electricity prices. Fiscal pressure becomes greater.

Such disruption to the Strait of Hormuz could drive oil prices to surge sharply, with government energy subsidy burdens rising accordingly.

This situation risks forcing the government to reallocate development budgets towards social protection and economic stabilisation.

Rising import costs drive up domestic goods prices. Public purchasing power is also squeezed.

Beyond the Strait of Hormuz, the Bab el-Mandeb Strait also holds strategic status. This channel connects Asian and European trade.

Disruptions in that region could slow global trade flows. Logistics costs increase and global inflationary pressures mount.

Conflict between Iran and the United States creates layered pressure on Indonesia’s economy. Risks include rupiah weakening, surging energy subsidies, and higher inflation.