Indonesia’s Economy Faces Headwinds as Iran Conflict Escalates

Jakarta, Indonesia – March 9, 2026 – Escalating tensions in the Middle East, specifically the ongoing conflict involving Iran, are casting a shadow over Indonesia’s economic outlook. The Jakarta Composite Index (IHSG) experienced its worst week of the year, while the rupiah weakened against the US dollar, fueled by rising oil prices and concerns about fiscal stability.

Market Performance and Investor Sentiment

The IHSG closed at 7,585.69 on Friday, March 6, 2026, a 1.62% decline representing a loss of 124.85 points. Total market transactions reached IDR 17.78 trillion, involving 34.18 billion shares. This marks the steepest weekly drop for the index since the beginning of the year, exceeding the decline experienced during MSCI volatility in January. Despite the overall downturn, foreign investors recorded a net buy of IDR 1.1 trillion on Monday, March 9th.

Analysts at Phintraco Sekuritas attribute the IHSG’s decline to the escalating conflict between the United States and Israel against Iran, which has shown no signs of easing after seven days. Technically, the IHSG has fallen below the MA5 and MA20, indicating continued short-term pressure.

Rupiah Weakens Amid Oil Price Surge

The rupiah slipped 0.12% to IDR 16,925 per US dollar on March 6th, following declines in other regional currencies like the ringgit, rupee, won, and baht. On Monday, March 9th, the rupiah weakened further to IDR 17,015 before closing at IDR 16,945, a 0.2% decrease.

The primary driver of the rupiah’s weakness is the surge in oil prices. Brent crude jumped 28.9% to around US$119.5 per barrel in intraday trading on March 9th, reaching its highest level since June 30, 2022, before settling around US$102.6 per barrel. This price is 46.6% higher than the US$70 per barrel assumption used in Indonesia’s 2026 state budget (APBN).

Fiscal Concerns and Government Response

The rising oil prices are raising concerns about Indonesia’s fiscal deficit. Finance Minister Purbaya Yudhi Sadewa warned that if oil prices remain in the US$90–92 per barrel range without adjustments to government spending, the 2026 APBN could face a deficit of up to 3.6% of GDP, exceeding the legal limit of 3%.

The government plans to absorb the impact of higher oil prices using the APBN, increasing the budget allocation for fuel subsidies. Minister Sadewa stated that the situation will be assessed over the next month to formulate an appropriate policy response. Energy and Mineral Resources Minister Bahlil Lahadalia assured the public that fuel supplies are sufficient and there are no plans to increase subsidized fuel prices before Eid al-Fitr.

As of the end of February 2026, the APBN realized a deficit of IDR 135.7 trillion, or 0.53% of GDP, compared to a 0.13% deficit in the same period of 2025. State spending jumped 41.9% year-on-year to IDR 493.8 trillion, while state revenue rose 13% year-on-year to IDR 358 trillion, driven by a 30.5% increase in tax revenues.

Corporate Updates

• Bank Negara Indonesia (BBNI): Shareholders approved a dividend distribution of approximately IDR 13 trillion, or IDR 349 per share, representing an 8.1% dividend yield based on the closing price of IDR 4,290 per share.
• Alamtri Resources Indonesia (ADRO): Reported a net profit of US$146 million in the fourth quarter of 2025, up 15% quarter-on-quarter but down 26% year-on-year. Full-year net profit reached US$448 million, exceeding expectations.
• Adaro Mainstay Indonesia (GO): Reported a net profit of US$173 million in the fourth quarter of 2025, up 9% quarter-on-quarter and 27% year-on-year. Full-year net profit reached US$760 million, in line with expectations.
• National Gas Company (PGAS): Reported a net loss of US$23 million in the fourth quarter of 2025, reversing a profit of US$76 million in the same period of 2024. Full-year net profit reached US$215 million, below expectations.
• Alamtri Minerals Indonesia (ADMR): Reported a net profit of US$67 million in the fourth quarter of 2025, up 5% quarter-on-quarter but down 35% year-on-year.
• Telkom Indonesia (TLKM): Signed an agreement to divest its healthcare companies, AdMedika, to Fullerton Health.
• ESSA Industries Indonesia (THIS): TP Rachmat sold approximately 42.2 million ESSA shares.
• Andalan Prima Core Synergy (INET): PT Abadi Kreasi Unggul Nusantara increased its ownership stake in INET.
• Chandra Asri Pacific (TPIA): Increased production capacity of its MTBE and butene-1 factories by 25%.
• Sido Muncul (SIDO): Reported a net profit of IDR 411 billion in the fourth quarter of 2025, up 5% year-on-year and 88% quarter-on-quarter.
• Ultrajaya Milk Industry & Trading Company (ULTJ): Reported a net profit of Rp392 million in the fourth quarter of 2025, up 54% year-on-year.

Looking Ahead

The combination of geopolitical instability and rising oil prices presents significant challenges for Indonesia’s economy. The government’s ability to manage the fiscal impact of higher oil prices and maintain investor confidence will be crucial in the coming months. Continued monitoring of the situation in the Middle East and proactive policy adjustments will be essential to navigate these turbulent times.