US-Israel War with Iran: Global Economic Impacts and Indonesian Concerns

The ongoing conflict between the United States and Israel against Iran is creating ripple effects across the global economy, impacting energy and food prices, trade routes, and tourism. In Indonesia, business leaders and government officials are closely monitoring the situation and preparing for potential economic disruptions.

Risks to Global Trade and Energy Supplies

A primary concern is the potential disruption to global energy and trade routes, particularly through the Strait of Hormuz, a vital chokepoint for world oil trade, handling approximately 20% of global oil supply. Even without physical closures of the route, the uncertainty surrounding the conflict is driving up energy prices and international logistics costs. As reported by the BBC, the fighting has escalated quickly, impacting multiple countries in the Middle East.

Impact on Indonesia’s Economy

Shinta Widjaja Kamdani, General Chair of the Indonesian Employers’ Association (APINDO), highlighted the increasing risk premium for oil and gas prices and rising international logistics costs as key concerns for Indonesian businesses. CNN reported on March 6, 2026, that neither the US nor Iran are signaling any willingness to de-escalate the conflict.

Energy and Food Inflation

As an oil-importing country, Indonesia faces the risk of increased production costs and a narrowing fiscal space if global energy prices continue to rise. APINDO also anticipates potential spillovers to food inflation, as higher energy prices impact distribution, logistics, and transportation costs for food commodities. This could accelerate the increase in prices of basic commodities, especially if coupled with global supply disruptions or a weakening of the Indonesian Rupiah.

Fiscal and Debt Management

Prolonged high energy prices could increase the burden of energy subsidies and compensation, requiring careful fiscal management to avoid excessive pressure on the state’s deficit and debt financing. Disciplined debt management, maintaining a credible deficit ratio, and ensuring targeted state spending are crucial for maintaining market confidence.

Impact on Indonesian Industries

Industries heavily reliant on energy and international logistics will perceive the most direct pressure. Labor-intensive sectors, with thin margins and high sensitivity to distribution costs, imported raw materials, and export demand, are also particularly vulnerable. Even as Indonesia’s direct trade relations with Iran and Israel are limited, indirect effects through global energy prices, trade disruptions, food inflation, exchange rates, and financial market sentiment are significant.

Tourism Sector Outlook

The geopolitical situation is also impacting Indonesia’s tourism sector, with potential flight cancellations. However, domestic tourism remains strong, with foreign tourist visits increasing by 14.4% in December 2025. ABC News reported on March 3, 2026, that Ayatollah Ali Khamenei was among those killed by airstrikes in Tehran.

Government and Business Responses

Indonesian businesses are focusing on risk mitigation measures, including adjusting production and distribution cost structures, increasing operational efficiency, implementing disciplined risk management (including foreign exchange exposure), and diversifying supply sources. APINDO encourages the government to maintain energy and food price stability, strengthen strategic reserves and distribution, ensure fiscal discipline and prudent debt management, and provide targeted support to affected economic sectors.

Key Takeaways

• The US-Israel war with Iran is creating global economic uncertainty.
• Indonesia is particularly vulnerable to rising energy and food prices.
• Businesses are focusing on risk mitigation strategies.
• Government support is crucial for maintaining economic stability.