Iran War Risks Widening Indonesia State Budget Deficit, Indef Warns

TEMPO.CO, Jakarta - The conflict between Iran, the US, and Israel poses the risk of widening Indonesia's state budget deficit, according to the Institute for Development of Economics and Finance (Indef).

The Head of the Indef's Macroeconomic and Finance Center, M. Rizal Taufikurahman, said the economic impact from the war will enter Indonesia through three main channels: energy, finance, and logistics.

Underscoring the disruption at the Strait of Hormuz, Rizal said the oil and LNG risks would affect Indonesia's energy import costs. "For Indonesia, a net importer of oil and LNG, the global price hike will drive inflation through higher transportation, electricity, and food logistics costs," said Rizal when contacted in Jakarta on Monday, March 2, 2026, as quoted from Antara.

Rupiah depreciation due to global risk-off phases—when capital exits from emerging markets—will exacerbate the pressure, he said.

From a fiscal perspective, Rizal explained that the government faces a dilemma between holding energy prices with the consequence of swelling subsidies, or adjusting domestic prices that risk suppressing people's purchasing power.

According to him, the combination of rising government spending, weakening revenue, and higher financing costs has the potential to widen the state budget deficit.

"The government must maintain exchange rate stability, reallocate non-priority spending, and strengthen targeted social protection rather than maintaining broad energy subsidies," said Rizal.

On a separate occasion, Executive Director of CORE Indonesia, Mohammad Faisal, said Israel's attack on Iran could trigger a surge in world oil prices.

Faisal explained that oil prices are currently parked around US$70 per barrel. However, if the conflict continues, prices could rise to US$80 per barrel, and even surpass US$100 per barrel if supplies in the Strait of Hormuz are disrupted.

Indonesia assumes crude oil prices in 2026 to be US$70 per barrel, with a projected US$1 hike to create additional government spending of Rp10.3 trillion.

Previously, the Ministry of Finance reported a deficit of Rp54.6 trillion, or 0.21 percent of the Gross Domestic Product (GDP), as of January 31, 2026, despite positive state revenue growth of 20.5 percent (year on year/yoy).

State revenue realization has reached Rp172.7 trillion, or 5.5 percent of the State Budget target of Rp3,153.6 trillion.

Read: Global Oil Prices Surge Following US-Israel Strikes on Iran

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