War Drives Oil Prices and Inflation Higher - State Budget Burden Increases

Jakarta — A CNBC Indonesia Research economist has highlighted the significant impact that rising crude oil prices resulting from the closure of the Strait of Hormuz and ongoing regional conflict will have on the global economy, including Indonesia.

Disruptions to the supply chains for oil and gas, fertilisers, and food commodities are raising concerns about surging global oil and food prices, which will drive inflation upwards. For Indonesia, these conditions risk increasing import costs for oil and food, placing greater strain on fuel subsidies and the state budget.

Additionally, the weakening of the rupiah will further increase the state budget deficit, dampening domestic activity and threatening Indonesian economic growth.

From an investment perspective, geopolitical tensions will also impact global financial markets, including Indonesia, as market participants grow concerned about economic and geopolitical developments. Investors are currently divesting from risky assets, including emerging markets, and shifting towards safe-haven assets or holding cash.

The analysis examines the war’s impact on the economy, financial markets, and central bank policy decisions.