The Impact of Iran-Israel War on Indonesia

THE Iran-Israel war has now entered its second week, showing that there is potential for long term escalation of this conflict. The Indonesian government should immediately anticipate the negative impacts of this conflict on the national economy.

Israel continues to attack Iranian strategic facilities, particularly its nuclear infrastructure, which the United States and Israel say is concealing weapons of mass destruction. Conversely, Iran, through its leader Ayatollah Ali Khamenei, has refused to surrender and will deploy all its military forces. These hardheaded attitudes mean that the future of the Middle East is increasingly uncertain.

The direct economic impact of this war began to be felt through an increase in the price of crude oil. When Israel attacked Tehran on June 13, 2025, the Brent crude oil price rose by 13 percent to US$78.5 per barrel—the highest since the start of the year. According to projections by JP Morgan, if Iran closes the Strait of Hormuz—through which one-fifth of the world’s oil supplies pass—the price could soar to US$130 per barrel.

As a net oil importer, Indonesia will bear the burden of an increase in import costs, which will then put pressure on the state budget. The government should allocate more funds for energy subsidies to prevent an increase in fuel prices and to ensure electricity supplies remain stable. But this could weaken the fiscal position and could risk a budget deficit. If it is not managed carefully, the impact could then affect national economic stability.

In an uncertain geopolitical climate, investors tend to withdraw funds from developing nations and transfer them to safer assets, such as the US dollar. As a result, the demand for the US dollar increases and the rupiah could depreciate. A weakening of the rupiah exchange rate means that imports are more expensive and could trigger inflation. Production and distribution costs increase, the price of groceries could rise, and people’s buying power is reduced.

Indonesia’s dependence on oil imported from Saudi Arabia—which is geographically close to the conflict region—also increases our vulnerability to supply shocks. At the same time, Indonesian exports to Middle Eastern nations are at risk of being disrupted because of instability in the region.

The Indonesian government needs to immediately draw up a road plan to mitigate impacts on the global economy. Measures that could be taken include expanding the export market to safer regions, seeking alternative energy supplies, strengthening strategic reserves and accelerating the transition to renewable energy. Coordination between fiscal and monetary policy must also be strengthened to maintain the stability of the exchange rate and control inflation.

Unfortunately, there have been no signs of a strategic response from the government. President Prabowo Subianto has visited several nations, but there have been no signs of concrete diplomatic missions to reduce the conflict and minimize the impact on national interests. This is despite the fact that Indonesia has a moral and historic position to encourage a peaceful resolution and to defend the interests of developing nations in international forums.

In this situation, we need a national leader who is responsive, forward-looking and who has the courage to take strategic moves. As the world moves in an increasingly uncertain direction, the countries that survive are those that adapt quickly and weather the storm.