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RI Must Be Ready To Face Further Impacts Of Iran-Israel Conflict

Indonesia must prepare for the continued impact of the conflict between Iran and Israel. This is because the conflict between the two countries has the potential to trigger global economic instability, especially in the energy, trade and fiscal sectors. 

Researcher at the Institute for Development of Economics and Finance (INDEF) Ahmad Heri Firdaus in a public discussion entitled "The Impact of the Iran-Israel War on the Indonesian Economy" in Jakarta, Sunday (29/6) afternoon said that Iran is one of the countries with the third largest oil reserves in the world. If the oil supply from that country is disrupted, followed by the closure of the Strait of Hormuz trade route, then global oil prices could soar sharply. 

"Oil importing countries such as Japan, even Europe, of course, are experiencing an increase in energy costs. If we look at it, the Middle East (oil exports) are greater to China, India, Europe, so those countries will certainly be affected first than Indonesia," said Ahmad. 

From the simulation results using the Global Trade Analysis Project (GTAP) economic model, Ahmad projected that the Iran-Israel war has the potential to reduce Indonesia's economic growth by 0.005 percent. 

Although it seems small in numbers, the indirect impact could be greater if major trading partners such as China and Japan are also hit. In his analysis, China and Japan are predicted to experience a slowdown in economic growth of 0.037 percent and 0.048 percent respectively due to the Iran-Israel conflict. 

In addition, Indonesia is also predicted to experience a decrease in import volume for various commodities, ranging from agricultural products, processed foods, metals, textiles, to petrochemical products and heavy manufacturing. 

Anticipatory Steps 

The increase in production input prices due to the spike in oil and gas prices also has the potential to reduce Indonesia's export competitiveness. In such a situation, the Indonesian Government needs to immediately take short-term anticipatory steps. 

The main priority is to maintain the stability of domestic fuel and LPG prices. The subsidy mechanism needs to be strengthened so that people's purchasing power is maintained and inflation does not spike sharply. 

"Then we can also diversify energy import sources. So, we divert oil imports from countries in conflict to non-conflict. Therefore, there needs to be acceleration in terms of energy cooperation in countries such as ASEAN, Australia, or others. So, maybe there is bilateral cooperation specifically in terms of energy trade," he said. 

RI Must Be Ready to Face the Further Impact of the Iran-Israel Conflict

Tag: Ahmad Heri Firdaus INDEF Iran Israel