US/Israeli-Iranian Conflict Poses Real Threat to Indonesian Economy

JAKARTA — The escalation of conflict between America/Israel and Iran is feared to pose real economic consequences for Indonesia. The warfare threatens to drive oil prices to significantly higher levels.

This assessment was provided by M. Azrul Tanjung, Head of Economics at the Central Board of the Indonesian Ulema Council (MUI). According to him, the closure of the Strait of Hormuz to civilian tanker traffic would disrupt oil distribution. Nearly 30% of the world’s oil supply, approximately 20 million barrels daily, passes through this shipping lane. Liquefied natural gas shipments powering Europe also utilise this route. “This means fuel for vehicles, aircraft, factories—everything depends on this passage. With disruption, domestic inflation would automatically increase significantly,” said Azrul on Monday (2 March 2026).

The conflict would also cause global economic slowdown due to supply chain disruptions. This could impact nations that remain dependent on imports. A slowdown in global economic activity would result from compromised supply chains.

“Rising prices (inflation) would disproportionately affect lower-income groups, whose spending on essentials and transport represents a larger share of their budgets,” Azrul explained. He is also an official of Muhammadiyah’s leadership council.

Other consequences, according to Azrul, include widening trade deficits, threatened currency exchange rates, and inevitable increases in energy subsidies. “Ultimately, poverty would expand further,” Azrul stated.

Furthermore, rising inflation would necessitate monetary policy tightening. Excessive tightening risks dampening economic growth. The government’s target of 8% growth becomes increasingly unrealistic. “If the central bank chooses to raise interest rates to control inflation, it has consequences for credit costs rising. Private investment could be restrained and household consumption would fall,” he explained.

Therefore, according to Azrul, amid Middle Eastern geopolitical turmoil and uncertain conditions, Indonesia must develop effective solutions. One approach is strengthening the domestic market.

There is a need for affirmative action supporting people’s economic enterprises, particularly micro, small and medium enterprises, to supply domestic market needs. Institutionally, cooperative organisations must be strengthened, with deep roots in communities. “Indonesians must strengthen and reinforce their appreciation for domestic products, including those produced by micro and small enterprises at local scales. This includes strengthening local economic wisdom,” Azrul concluded.