Antara, Jakarta – The government is under mounting pressure to expand energy subsidies as escalating tensions between Iran and the United States threaten to drive up global oil prices and squeeze household purchasing power.
Economist Wijayanto Samirin of Paramadina University warned that Indonesia's fuel subsidy burden could swell by Rp 3 trillion to Rp 4 trillion ($177 million-$237 million) for every $1 per barrel increase in crude oil prices.
"If subsidies are not increased, fuel prices will rise, inflation will accelerate, purchasing power will decline, and ultimately economic growth will slow," Wijayanto said on Monday.
Beyond oil price volatility, Iran's closure of the Strait of Hormuz has triggered risk-off sentiment across global markets. Investors are shifting funds into safe-haven assets such as gold and the US dollar, a move that could further pressure the rupiah.
Wijayanto cautioned that a weaker rupiah would complicate the government's issuance of sovereign bonds to finance the state budget deficit. "Unless interest rates are raised. But that would increase interest expenses and ultimately weigh on the state budget," he added.
As a short-term response, he urged the government to reallocate spending from non-urgent programs to strengthen the energy subsidy buffer. Increasing subsidies, he argued, remains the most immediate option, with a potential budget reallocation from the Free Nutritious Meals (MBG) program worth considering.
Separately, Coordinating Minister for Economic Affairs Airlangga Hartarto acknowledged the possibility of higher domestic fuel prices amid the geopolitical tensions. However, he said price pressures could be cushioned by rising US oil supply and additional production capacity from OPEC members.
The government has also moved to secure energy supplies outside the Middle East. State energy firm Pertamina has signed memoranda of understanding with several US energy companies to diversify Indonesia's crude oil import sources and reduce reliance on the conflict-prone region.