What is the Economic Impact of the War in the Middle East on Indonesia?

1. What impact will it have on world oil prices?

The closure of the Strait of Hormuz poses a risk of shaking the global economy and extending its effects to Indonesia. The route, which carries approximately 26 percent of the world's crude oil trade, is crucial for global energy supply.

Oil prices in the Asian market at the opening of Brent trading in London on Monday (2/3/2026) rose to 80 US dollars per barrel from the closing price of 72.87 US dollars per barrel in trading on Friday (27/2/2026). This represents a price increase of 13 percent.

Since the attack by Israel, supported by the US, on Iran on Saturday (28/2/2026), oil prices have continued to rise. At the beginning of last week, Brent crude was still being sold at 71.24 US dollars per barrel.

Meanwhile, West Texas Intermediate, the light crude oil produced in the United States, was sold for around 72 US dollars per barrel on Monday morning. This price, according to data from the CME group, increased by approximately 7.3 percent from the trading price on Friday, which was 67 US dollars per barrel.

The Director of the Middle East and OPEC at the analysis firm Kpler, Amena Bakr, estimates that oil prices could continue to rise to 99 US dollars per barrel.

Major shipping companies around the world have issued statements regarding the cessation of voyages through the Strait of Hormuz. Additionally, the waters of the Red Sea have become dangerous again after the Houthis in Yemen declared attacks on vessels associated with the United States and Israel.

2. How much pressure is there on the fiscal?

For Indonesia, which still holds the status of a net oil importer, the surge in energy prices poses a serious challenge. In the 2026 State Budget, the oil price assumption is set at 70 US dollars per barrel. Meanwhile, the average Brent price for the current year has reached 72 US dollars per barrel.

Based on the fiscal sensitivity analysis by Bank Mandiri, every increase of 1 US dollar in oil prices has the potential to add to the burden of energy subsidies and compensation in the state budget by Rp 10.3 trillion. Conversely, the additional tax and royalty revenue is only around Rp 3.5 trillion.

"If oil prices remain above the assumptions in the state budget, the government has the potential to increase subsidized fuel prices. This will certainly impact domestic inflation," said Andry.

He estimates that every 10 percent increase in the price of Pertalite could add 0.27 percentage points (ppt) to inflation. Meanwhile, a 10 percent increase in the price of diesel has the potential to add 0.05 ppt to inflation.

3. What about logistics costs?

The founder and CEO of Supply Chain Indonesia (SCI), Setijadi, explained that the rise in global oil prices will drive up domestic diesel prices. In fact, diesel is a key component of the operational costs of road transportation, which remains the backbone of the national logistics system.

"Assuming that the fuel component accounts for 35-40 percent of the total operating costs of trucks, a 10 percent increase in diesel prices could drive up transportation costs by 3.5-4 percent," said Setijadi in his press release.

If the price of diesel increases by 20 percent, truck costs could potentially rise by 7-8 percent. In a more severe scenario, a 30 percent increase in diesel prices could trigger a surge in transportation costs of 10.5-12 percent.

Setijadi said that sensitivity to diesel prices is relatively high because Indonesia's logistics structure relies on road transportation that uses diesel.

The average logistics cost in Indonesia is estimated to be 14 percent of the product price. About half of this cost comes from road transportation. An increase in truck fares by 7-8 percent could potentially raise the average price of goods by 0.5 percent.

Ultimately, the greatest risk is the inflationary pressure of distribution costs, particularly on food commodities and basic necessities. "In extreme conditions, an increase in transportation costs of over 10 percent can push prices up by nearly 0.8 percent, especially for food commodities, building materials, and fast-moving consumer goods with thin margins," he stated.

4. What are the impact scenarios on the rupiah?

Maybank Indonesia economist, Myrdal Gunarto, has created four scenarios regarding the closure of the Strait of Hormuz, along with the impacts on the pressure on the rupiah and the available monetary policy space.

In the first scenario, the closure of the Strait of Hormuz for one month is expected to cause only limited pressure. The rupiah remains relatively stable in the range of Rp 16,400–Rp 16,870 per US dollar, and even has the potential to strengthen slightly as the market views the disruption as temporary. In this condition, Bank Indonesia still has room to cut the benchmark interest rate to 4.25 percent to support economic growth.

In the second scenario, if the closure lasts for three months, external pressures will increase and trigger capital outflows to safe assets. The rupiah is at risk of weakening to around Rp 17,300 per US dollar, alongside a surge in global oil prices and inflation rising to 4 percent. In response to these pressures, Bank Indonesia is expected to raise the benchmark interest rate by 25 basis points to 5 percent to maintain exchange rate stability.

The third scenario, a six-month closure, brings deeper pressure with the depreciation of the rupiah to around Rp 17,800 per US dollar and a surge in Indonesian crude oil prices by approximately 20 percent. Inflation is expected to exceed 5 percent due to adjustments in subsidized fuel prices. In this situation, Bank Indonesia is projected to raise interest rates aggressively by up to 100 basis points to a level of 5.75 percent in order to mitigate the turmoil.

The fourth or worst-case scenario, in which the Strait of Hormuz is closed for up to nine months, predicts that the rupiah will be sharply pressured to around Rp 18,300 per US dollar. Inflation is likely to exceed 6 percent following a rise in subsidized fuel prices by up to 30 percent due to a surge in global oil prices. To maintain monetary stability and market confidence, Bank Indonesia is likely to raise interest rates by up to 150 basis points to around 6.25 percent.

5. Are flights also affected?

Minister of Transportation Dudy Purwagandhi, in an official statement in Jakarta on Sunday (1/3/2026), stated that several international flights passing through the Middle East region have been affected by the escalation of conflict in the Middle East. Some journeys have been canceled and redirected, although there are also those that have not yet been impacted.

So far, flight cancellations have been predominantly carried out by several foreign airlines. They have ceased operations for flights to and from all cities in the Middle East since the attacks by the US and Israel on Iran on Saturday (28/2/2026).

According to records from the Ministry of Transportation, there are 10 airlines that have canceled flights or are not operating flights. These include Etihad Airways, Qatar Airways, Emirates, Malaysia Airlines, Philippine Airlines, Indigo Airlines, Sri Lanka Airlines, China Southern Airlines, Singapore Airlines, and Scoot Airlines.

Other airlines, such as Saudia Airlines, are still monitoring several destination cities in the Middle East. Meanwhile, Oman Air continues to operate as usual. Ethiopian Airlines is also operating as usual, but is not conducting flights to Amman (Jordan) and Tel Aviv (Israel).

"We urge airlines to remain vigilant and passengers to actively monitor developments," said Dudy.

He stated that the Ministry of Transportation has coordinated with Airnav Indonesia, airlines, airport operators, and foreign authorities to update security information for the Middle East region and ensure safe and smooth flights.

With the cancellation and adjustment of flights, airlines and airport operators are requested to handle affected passengers in accordance with applicable procedures. This includes the process of canceling travel documents in the immigration area, arranging accommodations, and rescheduling flights.