Jayanty Nada Shofa, Jakarta – The Iran war has caused a surge in logistics costs for Indonesian palm oil exports, according to an industry association, although the current shipments mainly come from orders made prior to the conflict.

Almost two weeks have passed since the US-Israeli coordinated attack on Tehran at the end of February. Tensions in the region have choked off the Strait of Hormuz shipping route, hampering trade flows and leaving countless vessels stranded. The Indonesian Palm Oil Association (Gapki) told reporters on Wednesday that the war had not entirely stopped Jakarta from exporting the staple vegetable crop. But as tensions rise, supplying foreign markets has become more expensive.

"We are grateful that we are still exporting our palm oil amid the war.... But transport and insurance costs have gone up 50%. This can trigger a downtick in demand," Gapki chairman Eddy Martono said in Jakarta.

Seaborne Indonesian palm oil exports will have to search for alternative routes, hence longer voyages. The seismic shipping risks lead to higher insurance costs. Despite the higher bill, Eddy went on to say that countries "have no choice but to export", citing that the crude palm oil is "a daily necessity".

Gapki had previously reported that the Middle East had brought in around 1.8 million tons of Indonesian palm oil last year. The region's top buyers were Saudi Arabia (651,000 tons), the United Arab Emirates (475,000 tons), and Oman (219,000 tons).

"It's definitely hard to cross the Strait of Hormuz. [Palm oil] exports to the United Arab Emirates and Iran ground to a halt. We can still ship to Saudi Arabia, as well as key markets such as India and China," Eddy said.

Local producers are mainly fulfilling existing orders, although some foreign markets are holding back on signing new contracts, according to Gapki.

"But the war has just begun. We still have to wait until the end of the month to find out how much the exports have dropped," Eddy said.

Indonesia, the world's largest palm oil producer, has been banking on this agricultural crop to maintain a positive trade balance for 69 months in a row since May 2020. Senior economic minister Airlangga Hartarto admitted that the fighting's impact on exports would hinge on "how long the fighting would last".

Source: https://jakartaglobe.id/business/iran-war-causes-indonesian-palm-oil-export-costs-to-soar-5