The impact of the Iran-Israel conflict on Indonesia, the Rupiah could reach IDR 17,000 per USD

JAKARTA – After surprising the world with missile and drone attacks on Israel, Iran declared that the war with the Zionist country was over. Nevertheless, Iran emphasized that it would respond to any further provocation against the country.

Regarding the geopolitical tensions that are still high in the Middle East, Executive Director of the Center of Economic and Law Studies (CELIOS) Bhima Yudhistira said that Iran’s attack on Israel had four serious impacts on the Indonesian economy. These impacts, explained Bhima, include a spike in crude oil prices and pressure on the rupiah which could reduce the exchange rate to IDR 17,000 per US dollar (USD).

“First, it triggered a spike in crude oil prices to USD85.6 per barrel or an increase of 4.4% year on year,” said Bhima when confirmed by MNC Portal, Sunday (14/4/2024).

According to Bhima, the influence on oil prices is very reasonable considering that Iran is the 7th largest oil producing country in the world. Continuous conflict or open war could disrupt the production and distribution of oil from the Mullah’s country.

“Soaring oil prices will have an impact on widening energy subsidies and further weakening the rupiah exchange rate,” said Bhima.

The second impact, he continued, was the outflow of foreign investment from developing countries due to increasing geopolitical risks. “Investors are looking for safe assets, both gold and US dollars, so the rupiah could weaken to IDR 17,000 per USD,” he said.

The third impact, he continued, is that Indonesia’s export performance to the Middle East, Africa and Europe will be disrupted. This could cause economic growth to slow to the range of 4.6-4.8% this year.

The fourth impact is that the conflict could give rise to inflation due to rising energy prices so that pressure on people’s purchasing power could become greater.

“The global supply chain disrupted by war means producers have to look for raw materials from other places, of course the rising production costs will be passed on to consumers,” concluded Bhima.

(fjo)