Four Scenarios for Rupiah Pressure Due to the US-Israel vs. Iran War

JAKARTA, KOMPAS – The escalation of geopolitical tensions between the United States and Israel with Iran risks triggering global uncertainty. In addition to disrupting trade supply chains, the impacts of this conflict will also spill over into financial markets. This effect will indirectly extend to the Indonesian economy.

Global Markets Economist at Maybank Indonesia, Myrdal Gunarto, believes that the geopolitical tensions between the US-Israel and Iran, followed by the closure of the Strait of Hormuz, will impact the global economy and pose risks that could extend to the Indonesian economy.

The Strait of Hormuz is a route for 26 percent of global crude oil trade and 20 percent of global LNG trade, with a total trade value of approximately 600 billion US dollars per year. This means that the closure of this route would directly disrupt a portion of energy supply to the global market.

"In such a situation, the geopolitical risk premium is directly embedded in every barrel of oil, and Indonesia, as an oil-importing country with energy subsidy expenditures amounting to Rp 210.06 trillion in 2026, faces significant consequences," he said when contacted from Jakarta, Monday (3/2/2026).

He estimates that the scenario of closing the Strait of Hormuz, from short-term to long-term, will pose various risks. These risks include fluctuations in the exchange rate of the rupiah due to global uncertainties.

The first scenario involves the closure of the Strait of Hormuz for a month. The rupiah is expected to remain relatively stable in the range of Rp 16,400-16,870 per US dollar and may even strengthen slightly. Thus, Bank Indonesia (BI) still has room to lower the benchmark interest rate to 4.25 percent to support economic growth.

The second scenario, a three-month closure of the Strait of Hormuz, would alter market perceptions. This would trigger a shift in foreign capital to safe haven assets, putting the rupiah at risk of weakening to Rp 17,300 per US dollar.

The worst-case scenario is that the Strait of Hormuz will be closed for 9 months until the end of 2026. The rupiah will significantly weaken to reach Rp 18,300 per US dollar. Inflation will exceed 6 percent in line with a 30 percent adjustment in subsidized fuel prices due to the surge in global oil prices.

Amid the government's efforts to maintain a fiscal deficit of a maximum of 3 percent of the national gross domestic product, this condition will also drive an increase in subsidized fuel prices by up to 10 percent in line with the surge in global oil prices. As a result, inflation is expected to rise to 4 percent by 2026.

The pressure on the rupiah and inflation will prompt Bank Indonesia to raise its benchmark interest rate by 25 basis points (bps) to 5 percent. As a result, economic growth is expected to slow to 5 percent in 2026, below the government's target of 5.4 percent.

The third scenario, the closure of the Strait of Hormuz for 6 months, will lead to a deeper depreciation of the rupiah to the level of Rp 17,800 per US dollar. On the other hand, this condition will also trigger a surge in the price of Indonesian crude oil (ICP) by 20 percent to 84 US dollars per barrel.

In this scenario, the government will once again adjust the prices of subsidized fuel to maintain the fiscal deficit. Inflation is expected to rise to 5 percent, and Bank Indonesia will aggressively increase its benchmark interest rate by 100 basis points to 5.75 percent. Consequently, economic growth in 2026 is at risk of slowing down to 4.7 percent.

The fourth or worst scenario predicts that the Strait of Hormuz will be closed for 9 months until the end of 2026. The rupiah will significantly weaken, reaching Rp 18,300 per US dollar. Inflation will exceed 6 percent in line with a 30 percent adjustment in subsidized fuel prices due to a surge in global oil prices.

In this scenario, BI is compelled to raise its benchmark interest rate by 150 basis points to 6.25 percent to maintain monetary stability amid external pressures. This condition will result in Indonesia's economy growing only 4.5 percent in 2026.

"The worst-case scenario of the closure of the Strait of Hormuz for 6-9 months will test the resilience of the system, but with close coordination and swift policy implementation, Indonesia can minimize the impact and maintain market confidence," said Myrdal.

As a precaution, he continued, Bank Indonesia (BI) along with the Financial Services Authority (OJK) must maintain the stability of the monetary and financial system. Both institutions also need to ensure that liquidity continues to flow into the real sector.

On the other hand, financial institutions, such as banks, must manage risks strictly and adaptively in utilizing available liquidity, such as from subsidized housing loan schemes, People's Business Credit (KUR), and the macroprudential liquidity incentive policies of Bank Indonesia.

Bank Indonesia will continue to closely monitor market movements and respond appropriately, including ensuring that the exchange rate of the rupiah moves in accordance with its fundamentals.

Meanwhile, Erwin Gunawan Hutapea, Head of the Monetary and Securities Asset Management Department (DPMA) at Bank Indonesia, stated that the escalation of conflict in the Middle East following the US attack on Iran has driven risk-off sentiment in global financial markets. This means investors will shift their capital to investment instruments deemed safer.

"Bank Indonesia will continue to closely monitor market movements and respond appropriately, including ensuring that the exchange rate of the rupiah moves in accordance with its fundamentals," he stated in a written statement.

Citing Bloomberg data, on Monday (2/3/2026) afternoon, the exchange rate of the rupiah in spot trading moved at the level of Rp 16,851 per US dollar. The rupiah has depreciated by 0.38 percent compared to trading on Friday (27/2/2026), which closed at the level of Rp 16,787 per US dollar.

Erwin added that BI will continue to be present in the market to intervene in derivative transactions in the foreign market (Non-Deliverable Forward/NDF), derivative transactions in the domestic market (Domestic Non-Deliverable Forward/DNDF), and spot transactions.

"BI will also continue to optimize policies to increase the effectiveness of interest rate policy transmission," he said.