Full Breakdown
Indonesia's Economic Resilience Amid Middle East Conflict
4/13/2026, 10:54:52 PM
Economic Outlook Amid Rising Oil Prices
On April 13, 2026, Indonesia's Economy Minister Airlangga Hartarto announced that the country can withstand the economic impacts of rising oil prices due to the ongoing conflict in the Middle East for up to ten months without cutting fuel subsidies. This statement comes in light of global crude prices exceeding $100 per barrel following a series of strikes by the United States and Israel on Iran, which began on February 28, 2026, leading to a regional conflict and the effective closure of the Strait of Hormuz.
Indonesia, while an oil producer, remains a net importer and heavily subsidizes domestic fuel consumption. The government’s fuel subsidy covers approximately 30 to 40 percent of consumer costs, amounting to over 210 trillion rupiah (around $12 billion), which constitutes more than 5 percent of the national budget. The 2026 budget was initially based on an anticipated global oil price of $70 per barrel, and the government is mandated to maintain a fiscal deficit below 3 percent of GDP.
Government Strategies and Adjustments
Minister Hartarto indicated that each $1 increase in global oil prices adds approximately 6.8 billion rupiah (about $505,900) to the state budget. In response to the rising costs, the Indonesian government has implemented measures such as fuel rationing and a mandated work-from-home policy for civil servants one day a week to conserve energy.
Additionally, Indonesia imports between 20 to 25 percent of its oil from the Middle East but is actively seeking alternative sources from Africa, the United States, and Venezuela. Hartarto noted that these alternative sources could help mitigate the impact of the ongoing conflict on Indonesia's oil supply.
Growth Projections and Economic Challenges
Despite the challenges posed by the conflict, Minister Hartarto expressed confidence in Indonesia's economic resilience, projecting a growth rate of 5.3 percent for 2026. However, the World Bank recently revised its growth forecast for Indonesia down to 4.7 percent from 4.8 percent, reflecting concerns over the potential long-term effects of the conflict on the global economy.
President Prabowo Subianto aims to elevate Indonesia's economic growth rate from 5.1 percent in 2025 to 8 percent by 2029, primarily through increased public spending. The government is banking on rising commodity exports, including coal, rubber, nickel, copper, and aluminum, to bolster its economy during this turbulent period.
Criticism and Opposition
While the government maintains a positive outlook, there are concerns regarding the sustainability of its economic strategies amid fluctuating oil prices and geopolitical tensions. Critics argue that reliance on subsidies may not be a long-term solution and caution against the potential fiscal strain if oil prices remain high for an extended period.
Verbatim Quotes
- “And the government has sufficient funds for it.” — Airlangga Hartarto, Economy Minister
- “Some of the other (Middle Eastern) oil can be substituted by these multiple sources,” — Airlangga Hartarto, Economy Minister
- “war and peace.” — Airlangga Hartarto, Economy Minister
In summary, Indonesia's government is navigating a complex economic landscape shaped by external conflicts and rising oil prices, with strategies in place to mitigate immediate impacts while aiming for long-term growth.
