Indonesia Faces Economic Impact of Iran–Israel Conflict, Experts Warn
Jakarta, Indonesianpost.com – Retrieved from Antara, Indonesia must prepare for the potential economic repercussions of the ongoing Iran–Israel conflict, a researcher warned.
Ahmad Heri Firdaus, a researcher at the Institute for Development of Economics and Finance (INDEF), stated that while the impact may not be immediate, the conflict could trigger global economic instability, particularly affecting the energy, trade, and fiscal sectors.
Speaking at an INDEF public forum on the Iran-Israel war’s impact in Jakarta, Ahmad highlighted that Iran holds the world’s third-largest oil reserves. Any disruption in its oil supply—especially if the Strait of Hormuz is blocked—could lead to a sharp rise in global energy prices.
“Oil-importing nations like Japan and those in Europe would feel the surge first. Since Middle Eastern oil exports are primarily directed to China, India, and Europe, these regions would experience the effects before Indonesia,” Ahmad explained.
Using the Global Trade Analysis Project (GTAP) model, Ahmad projected that the Iran–Israel conflict could reduce Indonesia’s economic growth by 0.005 percent. While the figure may seem small, the indirect effects could be more significant, especially if major trading partners like China and Japan face slowdowns, with projections showing contractions of 0.037 percent and 0.048 percent, respectively.
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Indonesia could also experience reduced imports of key commodities, such as agricultural goods, processed foods, metals, textiles, petrochemicals, and heavy manufacturing products. Additionally, rising input costs due to higher oil and gas prices could further diminish Indonesia’s export competitiveness.
To mitigate these risks, Ahmad urged the government to act swiftly, starting with stabilizing domestic fuel and LPG prices through stronger subsidies to protect purchasing power and control inflation.
He also recommended diversifying energy import sources away from conflict zones and strengthening energy cooperation with ASEAN countries, Australia, and other stable partners.
Another crucial step, Ahmad added, is to expand and diversify industrial supply chains. “We need to reduce reliance on any one region for raw materials and increase upstream investments in sectors like fertilizers, alternative fuels, and intermediate goods,” he said.
Finally, he called on the government to identify the most vulnerable sectors, particularly manufacturing and agriculture, to ensure targeted protections and timely stimulus.
These measures, Ahmad concluded, are essential to shielding Indonesia from deeper exposure to global economic volatility. (BL)