UNAIR NEWS – The escalating U.S.-Iran conflict has sent shockwaves through the global economy, pushing markets into heightened uncertainty. Citing Reuters (June 22), Oxford analysts have outlined three potential outcomes of the conflict: a de-escalation of tensions, a complete halt in Iranian oil production, and the possible closure of the Strait of Hormuz.
Dr. Unggul Heriqbaldi, SE, MSi, MAppEc, an International Economics expert from Universitas Airlangga’s Faculty of Economics and Business (FEB UNAIR), outlined both the direct and indirect consequences this conflict may have on Indonesia’s economy.
Global oil price surge
Since June 13, 2025, Brent crude oil prices have risen by 13% bringing Brent to approximately USD 79 per barrel, while West Texas Intermediate (WTI) has jumped 10%. “With escalating tensions, including U.S. strikes and Iran’s parliament approving the closure of the Strait of Hormuz, we could see global oil prices soar past USD 100 per barrel,” said Dr. Heriqbaldi.
The Strait of Hormuz is a vital conduit, responsible for nearly 20% of the global crude oil supply. For Indonesia—a net importer of oil and LPG—this poses a serious threat. Rising prices could strain government subsidies and disrupt global supply chains dependent on fossil fuels. “If oil prices surpass the 2025 state budget assumption of USD 80–85 per barrel, fuel and LPG subsidy costs will surge significantly,” he added.
Mounting fiscal and inflationary pressures
The fallout from the conflict is also likely to impact exchange rates, reduce foreign direct investment (FDI), and increase the risk of external debt crises. “Developing countries like Indonesia, which rely heavily on energy imports and have considerable foreign debt exposure, are especially vulnerable,” he noted.
On the financial front, higher energy prices are expected to drive global inflation, prompting central banks in developed economies to raise interest rates. “This scenario worsens the debt burden. When currencies weaken and borrowing costs climb, nations with low foreign exchange reserves and fragile fiscal positions—such as Sri Lanka or Pakistan—face a heightened risk of external debt crises.”
Turning crisis into reform
Nonetheless, Dr. Heriqbaldi sees this crisis as an opportunity for reflection and long-term reform. He urged the government to bolster domestic resilience through medium- and long-term strategies, including social protection programs for vulnerable populations, such as conditional cash transfers.
Currently, Indonesia consumes 1.6 million barrels of oil per day but produces only 600,000—relying heavily on imports. “We need to accelerate domestic oil production, improve refinery efficiency, and implement structural reforms in the energy sector,” he advised.
He also stressed the importance of downstream development in oil, gas, mineral, and coal industries, and expanding the national energy mix through renewable energy.
“Energy diversification not only strengthens energy security but also accelerates decarbonization. The government must act swiftly to enhance investment incentives and develop the infrastructure needed to support renewable energy,” he concluded.
Author: Sintya Alfafa
Editor: Ragil Kukuh Imanto
