UNAIR NEWS – Global oil prices have almost reached $112 per barrel. The world’s oil prices increase leads to domestic oil price hikes because Indonesia has a very high oil dependence on external parties.
UNAIR economist, Dr Rossanto Dwi Handoyo SE MSi PhD, explained the impact of rising domestic oil prices. According to him, the increase in oil prices will erode Indonesia’s ability to stabilize domestic oil prices. In addition, according to him, it will generally lead to inflation.
Eroding the state’s ability to stabilize oil price
Rossanto said that Indonesia exports oil, but oil imports are greater than its exports. It categorized Indonesia as net oil importing country.
“Net importing countries are countries with more imports than exports,” he explained on Friday, July 8, 2022.
For net oil importing countries, he continued, the rise in world oil prices would erode the country’s ability to stabilize domestic oil prices. Not all countries entirely apply oil prices abroad to the country.
“So there will be subsidies given by the state to the domestic community to ensure that the price of oil is affordable domestically,” he explained.
Raising inflation
The UNAIR Economics lecturer explained that there are manufacturers who have to pay the same price as international oil prices. This is especially true for medium and large industrial plants.
“They are not allowed to enjoy subsidized oil or fuel prices from the government,” he revealed.
For the industries, he continued, increasing oil and fuel prices will increase production costs. The increase in production costs will then be transferred into the price of the output produced by the industries. “The increase in the price of industrial output will also increase the price of goods in general,” he said.
The increase in world oil prices has pushed up domestic oil prices, which the government does not subsidize. The increase in oil prices will be transferred to industrial output prices, so it will also push up inflation.
“This month, Indonesia has started to experience inflation which rose to 4.35 percent. It is one of the direct impacts we feel related to the oil prices,” he said. (*)
Author: Sandi Prabowo
Editor : Binti Q Masruroh
