US-Iran Conflict and Real Threat to Indonesia's Energy Stability
The escalation of open conflict between the United States, Israel, and Iran in recent days is far more than a regional geopolitical issue. It represents a global energy shock with the potential to directly strike Indonesia’s fiscal stability, electricity tariffs, and national industrial competitiveness within less than a quarter.
By way of illustration, approximately 17 million to 20 million barrels of oil per day—or nearly 20 per cent of global oil supplies—pass through the Strait of Hormuz. Beyond this, approximately 30 per cent of global LNG trade also moves through the same logistics route. Any disruption in this region, no matter how small, will immediately trigger increases in crude oil prices, tanker insurance premiums (war risk premium), and global energy shipping costs.
Indonesia is in an extremely vulnerable position regarding these dynamics. Indonesia’s dependence on fuel imports (BBM) currently stands at between 56 and 60 per cent of total domestic needs.
With this energy structure, every US$10 per barrel increase in global crude oil prices has the potential to add burden to energy subsidies and compensation in the state budget (APBN) to approximately Rp 35 trillion to Rp 40 trillion per year.
If this conflict drives global oil prices to surge from the current range of US$80 towards US$110 to US$130 per barrel, then the additional pressure on the APBN could reach Rp 100 trillion to Rp 120 trillion solely from the energy sector. In a tight fiscal environment, this figure is not merely a statistic—it is a real threat to the state’s spending capacity, inflation stability, and public purchasing power.
Risk also looms over the electricity sector. Several power plants in Indonesia currently have exposure to imported LNG at spot prices, particularly in the western Java, Kalimantan, and Sulawesi regions. In conflict conditions, Asia LNG prices (JKM) could increase from the range of US$11 to US$12/MMBTU to US$18 to US$22/MMBTU.
Every US$1/MMBTU increase in LNG prices can raise the Basic Cost of Supply (BPP) of national electricity by approximately Rp 4 trillion to Rp 5 trillion per year. Without policy intervention, this pressure will result in:
• increased need for electricity compensation,
• potential increases in industrial tariffs,
• weakening of the national manufacturing sector’s competitiveness.
In such a situation, a business-as-usual approach is no longer sufficient. The government must immediately activate emergency policies in the national energy sector.
First, increase the national operational fuel reserves from an average of 21 days to a minimum of 45 days of national consumption. Since Indonesia does not yet have an adequate Strategic Petroleum Reserve (SPR), the government needs to open a collaboration scheme with the private sector by utilising storage facilities owned by domestic energy businesses as a national energy buffer.
Second, maximise the use of domestic energy in the short term. In conditions of extreme geopolitics, coal and domestic gas must be positioned as energy security assets.
Optimisation of coal-based power generation (baseload) and implementation of the Domestic Market Obligation (DMO) for gas in the electricity sector can reduce exposure to the volatile LNG spot market. As an illustration, every reduction in LNG imports of 1 million tonnes can save foreign exchange of up to US$400 million to US$500 million per year.
Third, PLN together with energy businesses must immediately secure long-term LNG contracts with major supplier countries such as Qatar and Australia to maintain the stability of domestic primary energy prices amid global market volatility.
Fourth, the government needs to establish an Energy Supply Shock Task Force involving relevant ministries and the private sector to monitor global energy logistics risks in real-time and ensure the stability of domestic energy supplies to strategic industrial sectors.
Global energy crisis cannot be handled by government alone. The private sector has an important role to play in:
• provision of additional fuel storage facilities,
• support for energy distribution logistics,
• acceleration of investment in FSRU infrastructure,
• and joint financing schemes for the development of national strategic energy reserves.
Today’s global conflict is a reminder that energy resilience is not only an agenda for transitioning towards clean energy, but also the principal foundation of national economic stability.
Indonesia may not be able to control global conflict. However, Indonesia can—and must—strengthen its own energy resilience system before external shocks become domestic crisis.
Because ultimately, energy security is economic security.