How Will Indonesia’s Economic Growth Fare if the US-Iran Conflict Continues?

How Will Indonesia’s Economic Growth Fare if the US-Iran Conflict Continues?

Tempatdonasi.com – Indonesia’s Economic Growth: The ongoing US-Iran conflict is casting a shadow over the nation’s economic stability. Analysts at the Institute for Development of Economics & Finance (Indef) warn that prolonged geopolitical tensions could slow Indonesia’s growth trajectory by 2026. Key factors include rising oil prices, disrupted global trade, and reduced demand from major markets, all of which threaten inflation, consumer spending, and export performance. The scenario analysis explores how these risks might shape Indonesia’s economic outlook in the coming years.

Energy Price Volatility and Inflationary Risks

One of the most immediate concerns is the impact of energy price surges on Indonesia’s domestic economy. If crude oil prices rise by 30% from the current $70 per barrel, the effects could be severe. Higher fuel costs would likely increase the cost of living, reducing household purchasing power and straining budgets. This scenario also highlights a potential contraction in the export sector, as businesses face higher input expenses, while import levels could rise sharply to meet domestic needs.

“Rising energy prices will erode purchasing power, push inflation higher, and reduce real wages, creating a challenge for Indonesia’s economic growth,” stated Eisha M. Rachbini, Director of the Indef Program, in an interview with Antara on June 25, 2026. “The country’s reliance on energy imports means even modest price increases can have a cascading effect on economic performance.”

Indef’s models predict a 0.28% increase in the consumer price index (CPI) under this scenario, while real wages are expected to decline by 0.26%. The export sector faces a 2.44% contraction, whereas imports could rise by 7.80%. Despite these pressures, investment is projected to grow by 1.20%, demonstrating the resilience of Indonesia’s capital-intensive industries in the face of external shocks.

Global Demand Shifts and Trade Dependencies

Another critical threat arises from reduced demand in key trading partners. If major markets experience a 5% drop in import demand, Indonesia’s export-dependent economy could face a 5.05% contraction. This decline would directly affect domestic industries, leading to lower production and employment. At the same time, the consumer price index (CPI) might rise by 0.11%, reflecting reduced competition in the import market.

“The second scenario underscores the fragility of Indonesia’s economic growth when global demand wanes,” Rachbini added. “Even a small shift in international trade dynamics can have significant domestic consequences, particularly for export-oriented sectors.”

While real wages would fall by 0.29% in this case, imports are projected to decline by 0.23%, as trade partners reduce their purchases. This could lead to a modest 0.24% correction in Indonesia’s growth rate, emphasizing the need for diversification in trade relationships and domestic demand stimulation.

Supply Chain Disruptions and Geopolitical Risks

The third scenario delves into the effects of trade fragmentation and new tariffs. Increased restrictions could disrupt global supply chains, raising costs and limiting availability of goods. This would likely push the CPI up by 0.18% and reduce real wages by 0.23%, as businesses pass on higher production costs to consumers. Both exports and imports are predicted to decline, with the former dropping by 1.16% and the latter by 0.30%, contributing to a 0.17% slowdown in Indonesia’s economic growth.

“Geopolitical risks, combined with trade barriers, create a complex environment for Indonesia’s Economic Growth,” Rachbini explained. “The country must adapt to these challenges to avoid long-term stagnation.”

Investment growth remains subdued at 0.07%, signaling uncertainty in the business sector. While Indonesia’s economy is resilient, the cumulative impact of these factors could lead to a more pronounced slowdown, especially if global trade tensions persist. Policymakers are urged to implement measures that bolster domestic industries and stabilize external dependencies.