Jakarta, 12 March 2026 — Rising geopolitical tensions in the Middle East over the past few weeks have once again heightened global market concerns, amid a surge in global oil prices and increasing uncertainty along international energy trade routes. Prasasti Center for Policy Studies (Prasasti) assesses that the escalation of the conflict could become a new source of external pressure for Indonesia’s economy in 2026, particularly through energy prices, the rupiah exchange rate, and fiscal stability.
The conflict involving Iran, Israel, and the United States has also increased the risk of disruptions in the Strait of Hormuz, a strategic route through which around 20–30 percent of global oil trade passes. Any disruption in this route could trigger a global energy supply shock, potentially pushing crude oil prices higher and increasing volatility in international energy markets.
Prasasti’s Policy and Program Director, Piter Abdullah, stated that one of the earliest vulnerabilities that becomes apparent in situations like this is the limited national strategic energy reserves.
“When geopolitical conflict occurs in a region that serves as a major global energy trade route, importing countries like Indonesia must remain vigilant. Limited energy reserves narrow the policy space when global supply disruptions occur,” Piter said.
Indonesia’s strategic oil reserves are estimated to be sufficient for only around 23–26 days of consumption. This figure is still far below the International Energy Agency (IEA) recommendation of approximately 90 days of net import coverage. Under normal conditions, this limitation may not be very visible. However, in the context of potential global supply disruptions, it could increase Indonesia’s energy vulnerability.
He added that rising oil prices could also put pressure on the stability of the rupiah exchange rate.
“Higher energy prices typically increase energy import needs, which in turn can intensify pressure on the external balance,” he said.
Piter explained that rising global uncertainty also tends to push international investors to shift their portfolios toward assets perceived as safer. In such circumstances, currencies of emerging economies, including the rupiah, often experience higher volatility.
“When energy prices rise and global uncertainty increases, pressure on the rupiah tends to follow. This is influenced not only by domestic factors but also by the dynamics of global capital flows,” he explained.
These external pressures could also spill over to the government’s fiscal position, particularly through the energy subsidy mechanism. Indonesia’s state budget (APBN) remains relatively sensitive to fluctuations in global oil prices, meaning that rising energy prices could quickly increase government spending.
Several economic simulations indicate that if oil prices average around US$92 per barrel, Indonesia’s fiscal deficit in 2026 could widen to around 3.6–3.7 percent of GDP, exceeding the 3 percent fiscal deficit ceiling that has long served as Indonesia’s benchmark for fiscal discipline.
“When oil prices rise, the government faces difficult policy choices. Maintaining fuel prices through subsidies will add pressure on the state budget. On the other hand, allowing prices to follow market mechanisms could directly affect inflation and household purchasing power,” Piter said.
Piter noted that under rising global energy prices, several policy responses are possible in managing energy subsidies. If domestic fuel prices are maintained while global oil prices rise, the energy subsidy burden in the state budget could increase significantly.
“Conversely, if fuel prices are adjusted to follow market mechanisms, inflationary pressure and rising transportation and logistics costs will be felt directly by households and businesses. Another option is limited additional subsidies accompanied by various price stabilization programs, although this would still increase government spending,” he explained.
Fiscal pressure could also affect global investor sentiment toward Indonesia. Recently, several market indicators suggest that perceived risk toward Indonesian assets has begun to increase, including weaker demand in some government bond auctions.
Piter noted that in times of global uncertainty, investors typically demand a higher risk premium when placing capital in emerging markets.
“If global volatility increases while fiscal pressures rise, government financing costs could become more expensive. This is something that needs to be anticipated,” he said.
Prasasti also believes that geopolitical developments could affect Indonesia’s economic growth outlook. Piter sees the escalation of the Middle East conflict as potentially one of the largest external shocks to Indonesia’s economy in 2026, particularly if elevated energy prices persist for a prolonged period.
“At the beginning of 2026, Indonesia’s economic outlook still appears relatively solid. Prasasti estimates economic growth to be in the range of 5.0–5.3 percent, supported by relatively stable domestic demand and improving credit growth. However, rising energy prices could alter this dynamic,” he said.
Piter warned that rising oil prices typically increase production costs across sectors, weaken household purchasing power, and add pressure to the rupiah exchange rate.
“If energy prices remain high for an extended period, the likelihood of Indonesia’s economic growth falling below the 5 percent threshold becomes increasingly significant,” he said.
He added that prolonged energy pressures could also trigger a slowdown in household consumption and higher inflation through rising distribution costs. In a more extreme scenario, such conditions could increase the risk of capital outflows and intensify pressure on domestic financial market stability.
Past experience shows how external shocks can affect the domestic economy in a relatively short time. For example, during the 2008–2009 global financial crisis, Indonesia’s economy remained positive but slowed by around 1.4 percentage points within a year.
Nevertheless, Prasasti assesses that the current situation does not indicate an imminent crisis. Indonesia’s macroeconomic fundamentals are still relatively strong compared to previous periods of turbulence.
However, the situation still requires careful policy management. Piter emphasized that the government needs to ensure clear economic policy communication, particularly regarding strategies to maintain fiscal discipline, manage energy subsidy pressures, and preserve investor confidence.
“In times of global uncertainty like today, clarity of economic policy direction is extremely important. Markets will look at how the government maintains fiscal stability while ensuring that the domestic economy continues to grow,” he said.