Surge in Oil Prices Threatens to Strain State Budget and Consumer Purchasing Power
The impact of surging global oil prices resulting from the United States-Israel-Iran conflict casts a shadow over Indonesia’s economy. The pressure threatens not only the state budget (APBN), but also consumer purchasing power, which is vulnerable to energy inflation.
Nailul Huda, Director of Economy at the Centre of Economic and Law Studies (CELIOS), stated that every increase in crude oil prices automatically raises the government’s energy subsidy budget requirements. Rising energy costs, he said, risk widening the government’s spending burden in a short timeframe.
“When oil prices rise, the government’s subsidy burden will balloon, particularly for fuel. Our budget could collapse if there is no reallocation of expenditure to cover the increase in subsidies,” Huda said on Sunday (1 March 2026).
According to him, the government’s current fiscal space is relatively limited. If oil prices remain elevated, the government must adjust its expenditure structure to prevent the deficit from widening further.
Huda assessed that relying on increased government revenue is not an easy solution amid global uncertainty. A slowdown in the global economy risks dampening exports and domestic tax receipts.
“Relying on government revenue will be futile when global economy becomes increasingly unpredictable,” he said.
He also highlighted the option of taking on additional debt, which is not without risk. International rating agencies such as Moody’s and S&P Global Ratings have previously issued warnings regarding Indonesia’s fiscal management.
According to Huda, the impact of the energy surge will ultimately be felt directly by the public. An increase in crude oil prices can spread to non-subsidised fuel prices, transportation costs, and the price of basic necessities.
“If subsidies balloon and inflation rises, the most affected remain the people. Purchasing power can be eroded,” he said.
Amid global turmoil, he urged the government to prepare anticipatory scenarios to dampen pressure on the state budget and maintain stable household consumption.