Sri Mulyani Warns of Economic Fallout from Israel-Iran Conflict

Jakarta, Indonesianpost.com – Reported by Antara, Finance Minister Sri Mulyani Indrawati raised concerns on Tuesday about the potential economic repercussions of the ongoing conflict between Israel and Iran on Indonesia’s economy.

Speaking at a press conference, Minister Indrawati highlighted how the escalation of tensions in the Middle East has driven a sharp increase in oil prices, which have risen more than 8 percent—from under US$70 per barrel to US$78 per barrel. Although the prices have since corrected to around US$75 per barrel, the impact of the Israel-Iran tensions remains significant.

“This is a development that can directly affect the economy in profound ways—through commodity prices, exchange rates, interest rates, and capital flows,” she explained.

The Minister also pointed out that the United States’ expansionary fiscal policy could shift fiscal sentiment towards developed countries, potentially leading to higher yields on U.S. Treasury securities.

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Indrawati noted two major risks stemming from this situation: oil price volatility and broader global economic weakness.

“It’s a combination we must monitor closely—the inflationary pressure from rising prices and the increase in yields caused by geopolitical tensions and fiscal policy. These global dynamics have an impact on the entire world, including Indonesia,” she said.

The Minister further emphasized that the fallout from the Iran-Israel conflict could put additional strain on the State Budget. While Indonesia’s state revenues from oil and gas may increase, its expenditures could be affected due to the country’s reliance on imported oil.

At the end of May 2025, oil prices were recorded at US$62.75 per barrel—still below the 2025 State Budget’s macroeconomic assumption of US$82 per barrel. The year-to-date average price in May was US$70.05 per barrel.

“The price of oil is not only influenced by domestic factors but also by developments in the Middle East—particularly the conflict between Israel and Iran,” Minister Indrawati remarked.

“This is the fiscal outlook we are facing—an outlook that is highly sensitive to global economic trends and conflicts taking place elsewhere in the world,” she concluded. (BL)