TEMPO.CO, Jakarta - Indonesia’s state budget (APBN) risks widening its deficit if the conflict between the United States and Israel against Iran escalates further, as surging global oil prices increase the government’s energy subsidy burden.
Under the 2026 macroeconomic assumptions, the government set the projected oil price at US$70 per barrel. However, on March 3-4, 2026, global crude prices climbed above US$80 per barrel, up from around US$70 when the initial attacks began on February 27.
Susiwijono Moegiarso, Secretary of the Coordinating Ministry for Economic Affairs, said even a modest increase in oil prices would significantly strain the budget.
“For every US$1 increase in the Indonesian Crude Price (ICP), government spending must rise by Rp10.3 trillion due to energy compensation subsidies,” Susiwijono said during a discussion forum hosted by UOB Indonesia in South Jakarta on Monday, March 2, 2026.
While higher oil prices also boost state revenues, the additional income does not fully offset the extra spending. According to Susiwijono, every US$1-per-barrel increase could generate around Rp3.6 trillion in additional non-tax state revenue (PNBP) from the oil and gas sector.
“Spending rises by Rp10.3 trillion for every US$1 increase, while revenues only increase by Rp3.6 trillion. That means the deficit widens by roughly Rp6.7 trillion per US$1 hike,” he said.
Beyond fiscal pressures, the Middle East conflict has disrupted global supply chains, pushing up not only oil prices but also broader commodity costs. This, in turn, could fuel inflation in Indonesia.
“It will certainly raise prices, not only for energy but also for industrial raw materials, many of which we import,” Susiwijono added.
Fahmy Radhi, an Indonesian economist at the Faculty of Economics and Business at Gadjah Mada University (UGM), said the government faces a policy dilemma. If subsidized fuel prices remain unchanged, the fiscal burden will swell as the state absorbs the price gap.
However, raising fuel prices at the consumer level would likely trigger inflation.
“The largest fuel consumption comes from subsidized Pertalite gasoline and diesel. This is indeed a difficult choice for the government,” Fahmy said.
Read: Soaring Oil Prices: Challenges Ahead for Indonesia
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