Ria Fortuna Wijaya, Akmalal Hamdhi, Addin Anugrah Siwi, Jakarta – Rising geopolitical tensions in the Middle East following US military strikes on Iran have sent global oil prices higher, exposing Indonesia's limited energy reserves and raising concerns over fiscal stability, energy security, and trade balances.
Indonesia's oil storage capacity currently covers only about 25 days of supply, far below the strategic reserve levels typically maintained by major energy-importing nations. Energy and Mineral Resources Minister Bahlil Lahadalia said the situation has prompted the government to accelerate plans to build larger crude storage facilities.
"The investors are already there. The investment will come from a mix of domestic and international sources, but not from the United States," Bahlil said on Thursday, adding that the facilities will be developed by private-sector operators.
The government aims to expand storage capacity to cover up to three months of national oil consumption in order to cushion the country from prolonged global supply disruptions.
The urgency increased after Iranian authorities announced the closure of the Strait of Hormuz, a key maritime corridor through which roughly 20% of the world's oil consumption normally passes.
Brent crude traded at around $82.73 per barrel on March 5, compared with about $73 on Feb. 27, reflecting heightened geopolitical risks in global energy markets.
Despite the surge, Indonesia's current stocks of fuel, crude oil, and liquefied petroleum gas (LPG) remain above minimum safety thresholds. However, a prolonged disruption could quickly strain domestic reserves.
Rising subsidy burden
Higher oil prices could significantly increase the government's energy subsidy spending, which is based on an Indonesian Crude Price (ICP) assumption of $70 per barrel in the 2026 state budget.
Last year, Indonesia allocated Rp 394 trillion ($23.3 billion) for energy subsidies covering cooking gas, fuel, and electricity. Of that amount, Rp 27 trillion was specifically earmarked for fuel subsidies.
Oil industry analyst Hadi Ismoyo estimated that every $10 increase in global oil prices could raise Indonesia's fuel subsidy costs by roughly 14%.
"With escalating tensions in the Middle East pushing oil prices higher, subsidy spending will automatically expand," Hadi said, noting that higher crude prices typically translate into proportional increases in retail fuel costs.
Indonesia remains exposed to supply risks from the Middle East. Estimates suggest the country imports about 25% of its crude oil and 30% of its LPG from the region.
While supporting the government's plan to expand strategic reserves, Hadi cautioned that the project should be implemented gradually given the substantial investment required to build large storage facilities.
Fiscal risks
The oil price surge could also widen Indonesia's budget deficit.
According to the Finance Ministry, every $1 increase in the ICP could widen the state budget deficit by about Rp 6.8 trillion ($401 million).
With global prices now significantly above the government's assumption, prolonged geopolitical tensions could pose growing fiscal risks.
Ruth Elisabeth, an economist at the University of Indonesia, said the recent oil price increase could generate significant pressure on public finances if it persists.
Based on the ministry's assumptions, the current 13%-14% increase in oil prices could add Rp 88 trillion to Rp 95 trillion ($5.2 billion-$5.6 billion) to the budget deficit, she said.
"If the conflict continues, the impact could become even larger," Ruth said.
An end to trade surplus run?
Higher oil prices may also weigh on Indonesia's external trade balance.
The country posted a $0.95 billion trade surplus in January 2026, extending its streak of monthly surpluses to 69 consecutive months since May 2020, according to official data.
The surplus was driven largely by the non-oil and gas sector, which recorded a $3.22 billion surplus, supported by exports of commodities such as crude palm oil, iron and steel, and nickel.
However, Indonesia continues to run a structural deficit in oil and gas trade. The sector recorded a $2.27 billion deficit, reflecting the country's dependence on imported crude and fuel.
Elevated oil prices could increase the value of energy imports faster than Indonesia's oil and gas exports, potentially widening the deficit in the sector.
Last year, Indonesia recorded a $19.7 billion oil and gas trade deficit, even as the country maintained an overall $41.05 billion trade surplus, supported by a $60.75 billion surplus in non-oil and gas trade.
If global oil prices remain elevated, higher import costs could narrow Indonesia's overall trade surplus and place additional pressure on the country's external balance.