The Face of Indonesia's Composite Index Amid War: Why Does It Often Fall When Iran Becomes Involved?
The Indonesian Composite Index (IHSG) has plummeted following US-Israeli attacks on Iran, marking a distinct pattern compared to previous conflicts.
Market movement patterns reveal that the IHSG tends to experience greater pressure when conflicts begin to involve Iran, a consequence of Iran’s strategically critical position in global energy geopolitics, particularly regarding global oil distribution routes.
One notable example occurred on 13 June 2025, when escalating attacks involving Iran in the Middle East region triggered an IHSG correction of approximately 5.29% within a single week. This decline reflected growing investor concerns about potential disruptions to global energy supply and heightened uncertainty in international financial markets.
Greater pressure returned on 28 February 2026, when tensions involving the United States, Israel, and Iran intensified. Within approximately one week, the IHSG fell by around 10%, representing one of the deepest weekly declines triggered by geopolitical sentiment in recent years.
The primary reason the market reacted more severely this time was not merely the military conflict itself, but rather the conflict’s proximity to the Strait of Hormuz. The Strait of Hormuz represents one of the world’s most vital energy distribution routes, with approximately 20% of global oil supply passing through this region daily.
When tensions escalate around the Strait of Hormuz, the global market immediately anticipates potential disruptions to world oil distribution. These concerns then drive oil prices to surge sharply, breaching the $100 per barrel mark. Such energy price increases risk triggering global inflationary pressures, raising production costs across various nations, and expanding the risk of global economic slowdown.
In such situations, global investors typically become more cautious and adopt a risk-off stance, reducing their exposure to risky assets. One consequence is capital outflows from emerging markets, including Indonesia, which ultimately places additional downward pressure on the IHSG.
When compared with previous conflicts, the impact on the IHSG proves distinctly different. For instance, Russia’s invasion of Ukraine in 2022 saw the IHSG correct only approximately 1.5% within a week. Even when Hamas attacked Israel on 7 October 2023, the IHSG actually managed to record a modest gain of approximately 0.74% in a single week.
This difference demonstrates that markets do not always react identically to every geopolitical conflict. Conflicts with impacts limited to specific regions typically create only temporary pressure on financial markets. However, when a conflict touches global energy distribution routes, as occurs when Iran becomes directly involved, the impact can be considerably larger.
In other words, the current escalation is deemed more market-sensitive not merely because of geopolitical tensions, but also because it concerns the stability of global energy supply. As long as risks to the Strait of Hormuz persist, volatility in global markets, including the IHSG, could remain elevated.